Institutional Economics

Institutional Economics

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Institutional Economics
Institutional Economics
TACO Tuesday, judgement day for IEEPA and Trump's new war on foreign investment

TACO Tuesday, judgement day for IEEPA and Trump's new war on foreign investment

Plus, a short intellectual history of fiscal policy and interest rates

Stephen Kirchner
May 31, 2025
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Institutional Economics
Institutional Economics
TACO Tuesday, judgement day for IEEPA and Trump's new war on foreign investment
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Photo: Getty Images

Trump's tariff threat against the EU over the Memorial Day long weekend didn't make it to Tuesday, giving rise to a rally in equities earlier in the week and seeing the S&P to one of its best months in decades. I believe it was Rob Armstrong in the FT who coined TACO (Trump Always Chickens Out) to describe his pattern of threats and retreats. TACO is a great taunt, but it would be a mistake to think that Trump's inability to formulate a coherent negotiating strategy means that the world is somehow safe from his depredations against international commerce.

Even when Trump backs down, tariffs are often left higher than they were before. In the case of the EU, they’re back to the original ‘reciprocal’ deadline with the continued threat of even higher tariffs. The deal with the UK left in its wake a more restrictive trade policy than before. Trump 1.0's 'phase one' deal with China prevented a further increase in tariffs but left the tariff increases to that point in place. Trump has just announced he will double the steel and aluminium tariffs from 25 to 50 percent from 4 June, saying 'nobody is going to get around that.' He has accused China of breaking a non-existent agreement, which suggests things are not going well on the China front either.

Judgement day for IEEPA tariffs

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