By Lou Sokolovskiy

In recent days, a four-word meme has become gospel on Wall Street: “Trump Always Chickens Out.” Born from a Financial Times column, the phrase—shorthanded as “TACO”—described a pattern in which President Donald J. Trump’s administration issued sweeping tariff threats, only to walk them back after rattling markets.

The theory gave rise to a now-famous trading strategy: buy the dip after a tariff announcement and profit when the White House inevitably reversed course. But while the TACO theory fueled a risk-on attitude for traders, it simultaneously cast a long shadow over the market for corporate takeovers.

In the second quarter of 2025, North American mergers and acquisitions dropped sharply in volume. According to S&P Global Market Intelligence, the number of announced M&A deals fell 12.44% from the first quarter, down to 3,908 transactions. Yet total deal value dipped just 1.98%, suggesting that even as companies hesitated to make bets, some were still willing to pay big when they did.

The result: a paradoxical quarter where “dealmakers hit pause on M&A”, as FT noted, even though the prevailing market view—captured by the TACO meme—assumed Trump’s bark was louder than his bite.

A Theory Born in a Column, Amplified in Culture

The TACO acronym first appeared in Robert Armstrong’s May 2 Financial Times “Unhedged” column, and it quickly migrated from financial media to the political mainstream. News outlets including CBS News, PBS, and Global News repeated the term, and the Democratic National Committee even parked a taco truck outside the Republican National Committee headquarters as a satirical jab.

But the broader market reaction to Trump’s flip-flops underestimated the cumulative impact of the threat of imposing tariffs. The administration may have reversed course often, but the period of uncertainty between threat and withdrawal proved deeply toxic to strategic planning.

Traders Capitalize, CEOs Caution

The TACO cycle may have benefited short-term investors who bought during the “Trump tariff dip” and sold when he reversed course, the market volatility it caused proved fundamentally toxic to the confidence and long-term visibility required for dealmaking.  As Profit Guard, a Michigan-based risk monitoring site, recently put it, dealmakers must “determine whether their transaction goals would benefit from waiting for greater certainty.”

For companies pursuing mergers or acquisitions, the period between threat and resolution creates forecasting chaos. Financial modeling becomes unreliable, supply chain stability is cast in doubt, and valuation gaps between buyers and sellers widen to unbridgeable levels.

Evidence of the Chill

The numbers confirm a bifurcated M&A market: fewer deals, but bigger ones.

• Deal volume in Q2 2025: 3,908 (down 12.44% from Q1)
• Total deal value: $409.60 billion (down just 1.98% from Q1)

Globally, the pattern held. PwC reported a 12% drop in the number of M&A deals in the Americas in the first half of 2015 compared to the first half of last year. “Ongoing economic uncertainty, including heightened concerns about potential tariffs, as well as persistently high financing costs, have put downward pressure on valuations once again in 2025,” read the PwC report. As a result, the study noted, strategic buyers and private equity firms concentrated their capital into fewer, high-conviction megadeals.

Notably, the number of global megadeals over $1 billion rose 19% in the first half of 2025, and deals over $5 billion were up 16%.

Tariffs That Stuck—and Stung

Even as markets bet on reversals, many tariffs remained in force. By June 2025, the average U.S. tariff rate settled at 15.8%, with the average tariff rate after consumption shifts being 14.7%, the highest since 1938.

The Tax Foundation projected that these tariffs would raise $171.1 billion in federal revenue in 2025, amounting to the largest tax hike since 1993. The average U.S. household, it estimated, would pay an additional $1,296 in tariff-induced costs.

Corporate profits reflected the strain. U.S. firms experienced “their steepest decline since the 2020 pandemic” in Q1 2025, a trend analysts linked directly to higher input costs and trade policy uncertainty.

TPU: The Hidden Cost Behind the Meme

The report identifies a more insidious force than tariffs: Trade Policy Uncertainty (TPU). TPU doesn’t hinge on the actual implementation of tariffs, but on the unquantifiable unpredictability of policy. It’s what economists call “Knightian uncertainty”—risks that cannot be modeled or priced in.

The U.S. Economic Policy Uncertainty Index reached its second-highest level in 40 years in Q1 2025, trailing only the onset of the COVID-19 pandemic. Academic research shows that in periods of TPU, businesses delay investment. The Federal Reserve finds that “higher uncertainty about tariffs also dampens investment.”  Additionally, a Harvard Business School study showed that companies exposed to tariff uncertainty had to offer a risk premium of 3.6% to 6.2% per year to investors, driving up the cost of capital and rendering many deals financially unviable.

From Delays to Divergence

This uncertainty, according to the reports, caused major distortions in the M&A process:

• Buyers and sellers diverged on price, creating a “valuation disconnect.”
• Diligence cycles grew longer, as buyers conducted “extensive scenario modeling” and “deep dives into supply chain vulnerabilities.”
• Creative deal structures like earnouts and preferred equity instruments became more common, but added complexity.

These factors all contributed to the chilling effect observed in the latest quarter.

A Broader Economic Drag

In May, Strategas placed the probability of a recession in 2025 at 35% due to “increased uncertainty regarding global trade and the resultant impact on capital spending and deal-making.”

PwC says companies are now prioritizing “transactions in companies with a local focus within national borders, as well as in service companies or others less susceptible to tariffs.”

That’s reflected in deal flows: 91% of capital deployed by Americas-based buyers in H1 2025 remained within the Americas, up from 86% in 2024.

Outlook: Waiting for the Dam to Break

Despite the headwinds, dealmakers are not idle. A record amount of private equity dry powder remains undeployed, and firms are preparing for a future rebound.

The current slowdown has created a significant backlog of high-quality companies waiting to be brought to market. When policy clarity and financing conditions improve, a robust wave of deal activity could be unleashed.

While the TACO theory is no comfort to strategic investors, no one is saying that the M&A market slowed down because it disbelieved the TACO theory. Rather, it slowed down because the very process the theory describes is fundamentally hostile to the stability and confidence required for long-term capital commitment.

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July 2025