Economist Justin Wolfers believes markets may be underestimating President Donald Trump‘s “passion for tariffs” in assuming that he will renege on his latest trade threats.
Speaking to CNN on Wednesday, Wolfers, a professor of economics and public policy at the University of Michigan, said: “People have convinced themselves that Trump is going to chicken out again.”
“For what it’s worth, I think they’re too confident about this,” he added. “My reading of what Trump does and how he acts is [that] he really likes tariffs.”
Why It Matters
Market reactions to major trade announcements have grown more muted since Liberation Day, when Trump’s unveiling of “reciprocal” tariffs sent investors into a frenzy. This calmer response, despite potentially major economic consequences, has been attributed by some to investors anticipating that the administration will ultimately call off or postpone tariffs the president threatens to impose. This assumption has even spawned its own investment strategy—known as the TACO trade, an acronym for “Trump Always Chickens Out.”
But as Wolfers warns, premising financial decisions on the assumption Trump will backtrack underestimates the centrality of tariffs to his economic agenda.
What To Know
In his assessment, Wolfers mentioned Trump’s decision to pause his “Liberation Day” reciprocal tariffs only a week after these were announced on April 2, telling CNN that this U-turn had led to investor’s becoming overconfident in the TACO trade. The 90-day pause placed on these tariffs has again been extended, this time to August 1, at which point Trump says “everybody has to pay.”
The administration has consistently scaled back or postponed tariff plans since that time. On May 23, Trump threatened the European Union with a 50 percent tariff as negotiations with the bloc were “going nowhere.” This was initially meant to go into effect on June 1, but two days later, Trump said he would be pushing this deadline back to July 9, a date that has again be postponed amid progress in trade talks between the pair.
Wolfers’ comments come following this week’s tariff escalation, in the form of letters sent to over multiple countries including major trade partners such as Japan and South Korea, and which outline new tariff rates that will go into effect on August 1.
On Wednesday, the president announced that he would be imposing a 50 percent tariff on copper, while taxing all of Brazil’s imports at the same rate over the country’s “witch hunt” of former president Jair Bolsonaro, currently on trial over attempting to overturn his 2022 election loss.
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However, these far-reaching measures produced only a limited response in U.S. and global markets—when compared with the crashes that followed Trump’s original Liberation Day speech—with all three major American indexes still trading modestly higher over the past five days.
“Everyone has gotten used to this dance where Trump says something outrageous and then walks it back,” Wolfers said on Wednesday. “And I think much of Wall Street is betting yes, he’s saying big numbers and making big threats. But their bet is he’s not going to follow through.”
He added that investors should be wary of assuming Trump will change course on his latest tariff announcements.
“He meant to impose them on Liberation Day, it just so happened he allowed people to talk him out of it,” he told CNN.
“But there’s a real chance he’s not going to allow them to. In which case markets are going to wake up and see, and be worried about this damage all over again. For now they’re just not taking it seriously.”
What People Are Saying
Professor Justin Wolfers, via x: “Markets aren’t freaking out about the Trump tariffs because they believe he’s all talk and won’t follow through. I fear that’s under-estimating his passion for tariffs. It’s no sure thing, but I think it’s a pretty good bet that we’re on the cusp of a Liberation Day moment (again).”
Trump at a White House press conference on May 28: “I chicken out? Oh, I’ve never heard that. You mean because I reduced China from 145 percent that I set down to 100 and then to another number?”
He added: “You call that chickening out? … It’s called negotiation.”
What Happens Next?
It remains to be seen whether the Trump administration will scale back the tariff announcements made this week, postpone those already due to take effect, or enforce them by their new August 1 deadlines.
