Opinion | Will markets wake up from the Taco bubble before it’s too late?

Stock markets have roared back to levels seen before “Liberation Day”, seemingly on the mere belief that US President Donald Trump always chickens out – otherwise known as Taco – so no harm will be done in the end.

However, the Taco trade is based on a bubble. Collective self-deception can work for a while but only when there is enough money behind it. Despite recent talks to de-escalate, the US-China trade war is still pushing the global economy to the brink. A looming recession and higher inflation will mean there is a lot less money available for speculation, especially for the Taco bubble.

A lot of money is in circulation due to the US$8 trillion in quantitative easing undertaken by the US Federal Reserve between 2008 and 2022. Moreover, quantitative easing policies are still taking place around the world, which means there is enough money to keep the bubble going. Taco is just another psychological fix to bring back speculative courage.

Trump would like to sell the recently concluded US-China trade negotiations in London as a victory for Washington. He talks about a 55 per cent tariff on China versus 10 per cent the other way round, and that rare earth minerals will soon flow to the US again.

In reality, the London talks were just aimed at getting the Geneva agreement back on track. In the bilateral deal reached in May, they agreed to lower their tariffs by 115 percentage points each while de-escalating tensions. The 55 per cent tariff isn’t an increase from the Geneva deal but rather a reflection of the 10 per cent baseline tariff and pre-existing levies from before April 2.