TACO Paradox: Justin Wolfers Explains 'New Loop' — Wall Street Is Not Tanking Expecting Trump To 'Chicken Out', But He's 'Not Chickening Out' Because Wall Street Isn't Tanking

As the stock market has been scaling new records despite President Donald Trump‘s ongoing tariff disputes, this expert points out a new “feedback loop” fueled by TACO – ‘Trump Always Chickens Out’ trade on Wall Street that has kept the equities near their all-time highs.What Happened: According to Justin Wolfers, a professor at the University of Michigan and senior fellow at the Brookings Institution, there’s an ongoing problem with the “Wall Street → White House → Wall Street feedback loop.”In a video excerpt shared via his X account, Wolfers highlights that Trump listens to the Wall Street “very, very closely.” He explains, back in April, Trump “announced an absolutely horrible policy, Wall Street tanked, and then he backed off. That’s what led to the while TACO – Trump Always Chickens Out remark.”Building on this example from April, Wolfers continues to stress that Wall Street believes that Trump always chickens out, but “we don’t know about always, we know that he has done it once,” he adds.Thus, Wolfers infers that “Wall Street believes that he is going to chicken out and therefore Wall Street is not tanking. Because Wall Street is not tanking, Trump’s not chickening out.”This comes as Trump has threatened the possibility of 30% blanket tariffs on European Union and Mexican goods starting Aug. 1. He had also threatened sweeping 50% tariffs on imports from Brazil.Wolfers further highlights that this time, Trump may actually “charge these tariffs,” underscoring that “making policy by listening to Wall Street is a bad idea.”He also adds that “Most American corporations are starting to see some pressure on their profit margins, and so if he’s not gonna hear from Wall Street, hopefully at least he’ll be listening to big businesses.”Why It Matters: TACO Trade is an acronym that gained prominence in May 2025 after many threats and reversals during the trade turmoil initiated by Trump with his administration’s “Liberation Day” tariffs.Earlier, experts like Nigam Arora have also cautioned investors against the TACO trend. He said in June that “prudent investors should be prepared for a scenario of President Trump not chickening out.” While the new Aug. 1 deadline for tariffs nears, it remains to be seen if Trump will chicken out once again.Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, ended higher on Thursday. The SPY was up 0.61% at $628.04, while the QQQ advanced 0.81% to $561.80, according to Benzinga Pro data.On Friday, the futures of the S&P 500, Nasdaq 100, and Dow Jones indices were higher. AAPL ‘Stock Would Soar’ If It Buys This, Says Jim Cramer: ‘Continued Buybacks Will Do Nothing’ Photo courtesy: Shutterstock