Markets Back Trump on Tariffs—But That Confidence Could Crack

Wall Street is sending President Trump a message he loves to hear: "Go for it." With stocks at record highs, Trump is doubling down on his tariff agenda—and floating even bigger moves. But this growing market confidence may be setting the stage for a dangerous misread.

In a recent interview, Trump said he’s considering a universal 15%–20% tariff on all trading partners, up from the current 10%. This follows fresh tariffs on Canada and a dramatic 50% rate on Brazil earlier in the week. His rationale? Look no further than the stock market. “I think the tariffs have been very well-received,” he told NBC. “The stock market hit a new high today”.

Complacency Creeps In
Despite the aggressive rhetoric, markets have barely flinched. Treasury yields are calm, and the VIX index, a key measure of U.S. equity volatility, dropped to its lowest level since February. Even Bitcoin, often seen as a proxy for risk appetite, hit a record high. Traders, it seems, are brushing off the risks.

But that calm may be misleading. Analysts warn the market is now “desensitized” to trade risks, leaving it exposed to a sudden jolt if any of these tariffs actually stick. Hebe Chen at Vantage Markets summed it up: “Record highs and a low VIX signal markets have already priced in perfection… a pullback is very much on the table”.

From “TACO” to “FAFO”
There’s a deeper shift in the Trump playbook. Treasury Secretary Scott Bessent, speaking at a private event in Idaho, pushed back against the idea that Trump always caves when markets react badly—a theory jokingly called the “TACO” trade (“Trump Always Chickens Out”). Instead, Bessent described Trump’s current approach as “FAFO”—short for “F*** Around and Find Out.” Translation: Trump might be willing to push markets over the edge to win trade concessions.

The Bigger Picture: Overreach and Fragility
Behind the scenes, economists are bracing for collateral damage. Front-loaded exports in Southeast Asia may soon dry up, slowing GDP growth in the second half of the year. In the U.S., rising costs from imported goods could squeeze businesses, discouraging investment and hiring.

Even some market giants are voicing concern. JPMorgan CEO Jamie Dimon warned Thursday that investors are too complacent about escalating trade frictions. Meanwhile, strategist Michael Pearce of Oxford Economics said we should expect “larger tariff threats” in the weeks ahead.

So far, the economic blow that many feared has yet to materialize. But that may be because no one’s flinched—yet. If equity markets begin to wobble, we could see a quick reversal, just like after April’s “Liberation Day” tariffs triggered a rare triple threat: a falling dollar, plunging Treasuries, and a stock selloff.

Bottom line: Markets may be giving Trump the green light on tariffs for now—but if he overplays his hand, that confidence could turn into chaos fast. The next few weeks could test whether this rally is built on strength—or just wishful thinking.
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