Wall Street thought it had President Donald Trump all figured out on his trade war, but the past week has raised concerns that investors may be wrong.<\/p>\n
Markets had dismissed tariff risks under the assumption that Trump would follow an earlier pattern and back off, in what became known as\u00a0the\u00a0so-called TACO trade<\/a>. <\/p>\n That allowed stocks to reach new record-high territory recently, marking a stunning rebound from the collapse triggered by his \u201cLiberation Day\u201d reciprocal tariffs in April. <\/p>\n But Trump has seized on those very same stock market highs to justify pressing ahead with his aggressive tariff rates. <\/p>\n \u201cI think the tariffs have been very well received. The stock market hit a new high today,\u201d he told NBC News on Thursday<\/a>.<\/p>\n He also suggested a baseline rate of 15%-20%, higher than the current level of 10% across the board.<\/p>\n That came as he continued to unveil letters to U.S. trading partners throughout the week, laying out tariff rates they will face by Aug. 1 if no trade deals are reached. On Saturday, he threatened the European Union and Mexico with 30% rates<\/a>.<\/p>\n While the letters are largely seen as a negotiating tactic<\/a>, stocks have pulled back from their all-time highs as doubts about the TACO trade start to creep in.<\/p>\n \u201cMarkets appear to believe that Trump will again back down,\u201d Capital Economics said in a note on Friday. \u201cWe are not so sure.\u201d<\/p>\n For his part, Trump did not reimpose his reciprocal tariffs on Wednesday, when a 90-day pause was due to expire. But his new Aug. 1 timeline only offers a few more weeks of breathing room to reach trade deals that would avoid the high rates contained in his dozens of letters.<\/p>\n Meanwhile, Trump is pressing ahead with sector-specific duties, announcing 50% tariffs on copper and warning that imported pharmaceuticals could face a 200% rate.<\/p>\n For now, stocks are not experiencing a repeat of April\u2019s meltdown, when the S&P 500 crashed nearly 20% from its prior high to flirt with a bear market. The relatively muted reaction is presumably due to the TACO trade.<\/p>\n \u201cBut that creates a dangerous circularity, since the main reason Trump was forced to shelve his Liberation Day plans originally was because of the sell-off in not only the equity market but the Treasury market too,\u201d Capital Economics said. \u201cWithout that pressure, Trump may feel more emboldened to follow through this time, particularly since\u2014up to now at least\u2014tariffs appear to have had little impact on final consumer goods prices and claims the economy would be plunged into recession have been proven wrong.\u201d<\/p>\n