Why Investors Aren’t Panicking Over Trump’s Tariff Threats—Yet
In a week filled with bold rhetoric and escalating threats from the Trump administration, investors might have expected the stock market to recoil. After all, reports on Friday revealed the White House is considering new tariffs of 15% to 20% on European Union goods—a substantial increase from prior expectations. Financial Times
However, instead of panic, the S&P 500 briefly dipped before rebounding to end the day virtually flat. This muted reaction is becoming a pattern.
Despite headline after headline warning of rising trade tensions, Wall Street has largely stayed the course. Even the so-called “liberation day” tariffs announced back in April—an event that temporarily rattled markets—ultimately proved to be a speed bump rather than a derailment.
So why are investors so calm now?
1. Tariffs Are Seen as a Negotiation Tactic
One prevailing theory is that Trump’s tariff threats are more about leverage than long-term policy. Many professional investors now subscribe to what’s been dubbed the “TACO trade”—Trump Always Chickens Out.
This idea, coined by a columnist at the Financial Times, suggests that Trump’s tough talk is meant to speed up negotiations, and if markets begin to wobble, he’s likely to pull back, just as he did in April when a 90-day tariff delay was announced shortly after a market selloff.
“Frustrated with the slow pace of talks, it seems the president is trying to incentivize trade partners to move faster,” said Dennis DeBusschere of 22V Research. According to his conversations with institutional investors, the expectation remains that tariffs will be rolled back once deals are finalized.
2. Legal Hurdles May Neutralize Tariffs Anyway
Another reason for investor calm: the courts. Back in May, federal judges ruled that Trump lacked the authority to enforce his April tariff package. While an injunction allowed them to remain temporarily, many believe future tariffs will face similar legal challenges.
This creates a “wait and see” buffer that allows markets to price in the possibility rather than certainty, thereby mitigating immediate volatility.
3. Strong Earnings Are Taking the Spotlight
The corporate earnings season has gotten off to a strong start, and investors are focusing on fundamentals rather than policy noise. Reports from major banks last week, including JPMorgan Chase, Citigroup, and Bank of America, highlighted resilient consumer credit and economic strength, with low default rates and stable loan portfolios.
Big tech and consumer names are also posting better-than-expected results, helping the S&P 500 and Nasdaq Composite stay near all-time highs.
4. Economic Data Continues to Impress
Despite inflationary pressure and trade uncertainty, key economic indicators remain strong. The latest employment and retail sales data point to an economy that continues to expand. Add to that the passage of the “One Big Beautiful Bill Act”, which finalized key budget and tax measures, and it’s clear why investors feel more grounded than they did in the spring.
“Back in April, we didn’t know how the budget bill was going to come out… Now we know,” said Erik Aarts, senior fixed-income strategist at Touchstone Investments. “Markets have been able to lean into that a little bit.”
The Bottom Line
Markets are far from complacent, but every new tariff headline no longer rattles them. Investors are placing their faith in negotiating bluster, legal challenges, and strong economic fundamentals to weather the storm.
Whether that optimism holds will depend on how aggressively the administration acts—and how long the economy can continue to shrug off policy risk.
For now, the message from Wall Street is clear: It’s going to take more than tariff talk to derail this rally.