Trump's Tariff Clock Ticks, But 'TACO' Traders Aren't Losing Their Cool

With only days remaining until President Donald Trump’s self-imposed July 9 tariff deadline, the world trade scene resembles more of a geopolitical roulette table than a negotiation process. Although Trump’s return to tariff diplomacy has reignited diplomatic turmoil and corporate jitters, ETF investors seem to be playing it cool, at least for now.

In typical Trumpian style, the U.S. President has threatened broad new tariffs for dozens of nations that don’t come to framework deals within a week. But the frameworks unveiled so far, such as with the UK and China, have been short on substance and long on optics, according to Bloomberg. And while volatility typically follows trade tensions, the markets are responding with an unusual resilience. So are ETF performances.

As it happens, investors might be putting their money on the “TACO” theory, short for “Trump Always Chickens Out,” a sarcastic acronym that has gained traction on trading desks to characterize his style of issuing bold threats and then backing down.

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Global Trade In The Crosshairs…Again

The stakes are high. From Canada and the EU to Taiwan and India, a broad swath of nations is at risk of getting their tariffs increased unless they negotiate deals or are considered to be “negotiating in good faith.” Trump has warned that tariffs could climb from the 10% baseline to as much as 25%. He has even suggested he might act before the July 9 deadline.

The White House has been sending mixed signals. Commerce Secretary Howard Lutnick claimed the administration is aiming for "top 10 deals" with key partners. Meanwhile, Treasury Secretary Scott Bessent stated that nearly 20 countries may face immediate tariff hikes. Canada, for its part, has already blinked—backing off a digital services tax to get back to the table.

However, even as Trump ignites the trade universe with 280-character warnings, the ETF universe has remained relatively calm.

ETF Investors: Not Panicked, But Cautious

Here’s what the ETF market action indicates:

Nation-specific ETFs that are correlated to stalled negotiations like iShares MSCI India ETF INDA, iShares MSCI Taiwan ETF EWT and Global X FTSE Southeast Asia ETF ASEA have experienced a combination of speculative investments and defensive holding based on Trump’s rhetoric. Nonetheless, all three prices are in the green so far this year.

China’s exposure is still delicate. KraneShares CSI China Internet ETF KWEB is up more than 3% in June, but has been volatile amid speculation about whether tariffs on rare earths and digital products will be reinstated.

Safe havens and commodities are in style again. SPDR Gold Shares GLD has recorded some of its most significant monthly advances since February, indicating investors are hedging against policy misfires.

If Trump follows through on blanket tariff increases, the shakeout would be rapid.

Potential ETF Winners

Domestic-centric ETFs, such as iShares Russell 2000 ETF IWM and Utilities Select Sector SPDR Fund XLU, may benefit from a rotation away from export-oriented companies.

Gold and bond ETFs, such as GLD, may experience inflows as investors scramble for safety following a policy shock.

India and Southeast Asia ETFs, such as INDA and ASEA, could become popular if the U.S. solidifies its relationships with these countries as part of its “friendshoring” initiative.

Likely Losers

Export-oriented ETFs, such as the Industrial Select Sector SPDR Fund XLI and the Materials Select Sector SPDR Fund XLB, are heavily dependent on cross-border supply chains.

European nation ETFs, like iShares MSCI Germany ETF EWG, iShares MSCI United Kingdom ETF EWU, and iShares MSCI Eurozone ETF EZU, may experience volatility if the EU fails to reach an agreement by the deadline.

Global exposure tech sector ETFs, such as the Technology Select Sector SPDR Fund XLK, could come under increased pressure if digital services taxes persist as an ongoing obstacle.

Markets Playing Chicken?

Equity markets have not yet fully priced in the possibility of Armageddon. The S&P 500 is still at record levels. Volatility is low (VIX at 16.74). And ETF investors appear to be hedging, not running for the hills.

As the tariff countdown continues, ETF investors are closely monitoring, though not yet bailing out. Whether Trump adheres to the deadline or drags out the anarchy into late July is anybody’s guess.

For the time being, the smart money is wagering on still more “deal theater,” tastefully staged for maximum political impact. But as always with Trump, a single tweet could upend everything.

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