TACO Hell
After commenting once or twice on current events, I had hoped to return to more personal musings about finding our futures, but the sound and fury of the incessant news cycle just won’t go away.
So, here we are with another short read on the insanity that characterises international trade negotiations in 2025. As always, our goal is to cut through all the noise to simplify things to get at the likely outcome of all the chaos.
“Stock market today: S&P 500 marks best May in 30 years as Wall Street bets on tariff relief”
The preceding line, from a prominent financial news site, may surprise some who have been following the rhetoric, but not the responses of financial markets to it. Best May in 30 years? What’s going on? It turns out that the winning move in May was the TACO trade, an acronym among Wall Street pros that stands for Trump Always Chickens Out. When the headlines screamed “Economic Disaster Imminent”, retail investors panicked and sold, while those who bet that the US president would soon reverse course are sitting on handsome short-term profits.
Is this a signal that all will be well? Not a bit of it. For one thing, TACO is the opposite of a self-fulfilling prophecy- the president, as the butt of the joke, is reported to be incensed, angered, annoyed and even slightly miffed at being called a chicken in public.
His resulting mood will probably have real consequences for trade discussions, making him less likely to back down next time. Additionally, taxes on foreign trade are an essential element of the new US fiscal policy. To quote another familiar Wall Street acronym, TINA, There Is No Alternative.
It is a truth universally acknowledged that the US needs both higher tax revenues and lower spending. Previous administrations kicked the can down the road, leaving their successors to deal with it, but signals are increasing that the end of the road is nigh, and the can can no longer be kicked.
To raise domestic taxes on the donor class before the 2026 congressional elections is a non-starter. A few days ago, when Elon Musk, who had made over $300 million in political donations in 2024, announced he was “probably done” with donations, people all over Washington jumped like they had found a scorpion in their beds. Big donations are a feature, not a bug, of the election system.
Consider the Venn diagram below
For those unfamiliar, these diagrams are a way of organizing thought around two or more variables: a way of reminding ourselves that two things can be true at once; e.g., something can be both politically possible and economically harmful (the dark hatched area in the diagram). High tariffs that are implemented haphazardly with no apparent logic would fall into this category. Successful negotiations could drag the outcome along the arrow within the politically possible and away from the economically harmful.
The Fantasy tax, you ask? Oh ,that’s a little hobbyhorse of mine. Completely impossible, it’s a 4c per seat mile tax (or tariff ) on all flights, commercial or private, into, out of, or within the US. It would raise 60 billion dollars annually.
It could never happen, but it would raise the cost of a flight from New York to LA by $99, with shorter routes paying less. Competition would cause the cheapest no-frills seats, where the price is a big part of the decision to fly, to rise by less, and full fare and business class to rise by more. Other effects would be layoffs, worse service (trust me, it’s possible), lower airline profits, and, of course, fewer flights. Only a legislator who had no airports in their district could vote for it. It’s
progressive (the rich pay more)
better for the environment
better for taxpayers and
impossble
On dark days, it’s tempting to drift into fantasyland.