Trump and TACO: Will it be different this time?

Trump's Tariff Strategy and Market Reaction

Over the weekend, Trump announced tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland, starting at 10% on February 1 and rising to 25% by June 1 unless the U.S. is allowed to buy Greenland. He cites national security reasons, stressing that without control of Greenland, Russia and China could dominate its resources. Greenland's vast untapped deposits of rare earth minerals, crucial for tech and military, present a significant opportunity for the U.S. to reduce dependence on Chinese exports. Since last year, Trump has been using tariff threats to coerce countries into compliance, setting future effective dates as a strategy. This behavior has led to the ‘TACO trade’ phenomenon, where the initial negative market reactions to Trump's tariff threats often resolve into rallies after agreements or retreats by Trump. The World Economic Forum in Davos this week could provide an opportunity for Trump to meet with G7 leaders. Any de-escalatory comments could spur a market rally. Overall, the market is focused on the latest trade tensions, with limited upside potential amid TACO expectations. Traders should watch for developments in the coming days to identify potential trading opportunities.