Beautiful Bills and the TACO Trade: Betting on Africa when the World Blinks

An emerging meme in global markets is the “TACO trade”. Shorthand for “Trump Always Chickens Out.” Wall Street uses this label to describe how markets react when U.S. President Trump announces new tariffs. Typically, stocks sell off on the news of sweeping tariffs but then rebound sharply if or when he delays or reverses them. For example, after Trump unveiled his broad “Liberation Day” tariffs on April 2, 2025, U.S. equities fell over 10%, only to recover their losses when he announced a 90-day pause. Similarly, a proposed 50% tariff on the EU in June was postponed to July 9, prompting a market rally. Traders have even adopted the motto “buy the Trump tariff dip”, betting that the President will back down in the face of market pressure. This dynamic has boosted short-term risk-taking, with some investors growing confident that tariff scares are temporary.

For African development financiers, the TACO pattern is a double-edged sword. On one hand, it suggests that short-term shocks may be transient, potentially allowing investment yields to recover quickly after volatility. On the other hand, reliance on this pattern is risky if policy does not relent. As one strategist warned, if threatened tariffs ultimately take effect, a prolonged trade war could drag the global economy into recession. In such a downturn, risk aversion could dry up capital flows to Africa. Thus, while “TACO trade” behaviour may steady global markets in the immediate term, it also highlights the underlying policy unpredictability. African policymakers and investors cannot assume that tariff threats will always be retracted; instead they must plan for both outcomes.

(Source: https://www.shareplanner.com/blog/stock-market-notes/what-is-the-taco-trade.html)

Under President Trump’s directive, the United States has broadly threatened or imposed high tariffs on many trading partners. In mid-2025, Trump announced blanket tariffs (often 30% or higher) on imports from dozens of countries – set to take effect around August 1. Notably, U.S. leaders sent letters to 23 trading partners, specifying new “reciprocal” tariffs on a wide array of goods. This swept in many African nations. For example, Angola (32%), Algeria (30%) and Botswana (37%) face proposed 30–40% tariffs. Nigeria was slated for a 14% tariff (delayed until August), and South Africa’s exports were threatened with a 30% duty. Such tariffs would hit key export sectors – oil and minerals in Angola, manufactured and agricultural exports in South Africa, etc.

In South Africa’s case, leaders publicly lobbied to avert a 30% tariff, noting that U.S. imports there already average only ~7.6% and that most U.S. goods enter South Africa tariff-free. They stressed that any tariff might be modified if a trade deal is struck. Similarly, Brazil was singled out with a 50% tariff – not on economic grounds but due to political tensions over former president Bolsonaro’s trial. These moves have unsettled global markets. Reuters notes that investors are “on edge” as they await final tariffs.

(Source: Atlantic Council - https://www.atlanticcouncil.org/programs/geoeconomics-center/trump-tariff-tracker/)

The net effect of this trade war volatility can be negative for Africa. U.S. tariffs on commodities (copper, oil, cotton, etc.) can choke demand for African exports. Even threatened tariffs erode confidence: if African exporters fear losing U.S. market access (e.g. through AGOA’s expiration or new duties), they may delay investments or seek alternative buyers. Importantly, these tariffs are in addition to existing uncertainties in U.S. trade policy. For example, Trump’s administration has signalled no commitment to renew trade preference programs like AGOA and GSP. A trade-law firm notes that Congressional discussions to extend these programs “have gone nowhere,” making it likely AGOA will expire in September 2025. If AGOA lapses, many African goods (textiles, apparel, etc.) will suddenly face full U.S. tariffs – a major blow to investment plans tied to those sectors.

On July 4, 2025 the U.S. Congress passed the Republican “One Big Beautiful Bill” – a massive tax-cut and spending package. This law extends and deepens U.S. fiscal deficits by trillions of dollars. Critically, independent analysts and institutions warn that such loose U.S. fiscal policy will have significant spillovers for Africa. A recent sovereign analysis notes that expanding U.S. deficits tends to strengthen the U.S. dollar and push up global interest rates. Historically, such U.S. fiscal stimulus has pressured international borrowing costs. The IMF itself observed that “loose fiscal policy in the United States exerts upward pressure on global interest rates and the dollar”.

For African borrowers, this matters a lot. A stronger dollar and higher rates mean more expensive debt. Sovereign and project loans (often $ denominated) become costlier to service. African central banks face a classic policy “trilemma”. They must contend with higher U.S. rates while trying to stabilise exchange rates and allow capital flows. If the US Federal Reserve tightens in response to the fiscal expansion, African governments could see capital outflows, raising yields on local bonds. The SA-Ratings analysis warns that many African economies could face “heightened debt distress and macroeconomic instability” as a result of these external pressures. In essence, the “Big Beautiful Bill” puts upward pressure on borrowing costs worldwide, squeezing already-tight infrastructure budgets in Africa.

Taken together, volatile U.S. trade policy and fiscal policy create a challenging environment for African infrastructure investors. Firstly, Global borrowing costs are likely to rise. As noted above, U.S. deficits strengthen the dollar and U.S. interest rates, which in turn push up rates in emerging markets. African development banks and sovereign borrowers may face higher interest on new loans. Also, African currencies can swing on U.S. news. For example, the South African rand (a bellwether currency) “takes cues from global drivers like U.S. policy”. If U.S. policy fuels safe-haven flows into dollars, local currencies may weaken, raising the local-currency cost of imported infrastructure materials or dollar-denominated debt. Tariffs on African exports (or loss of trade preferences) threaten hard currency earnings. Lower export income can squeeze government budgets and reduce local counterpart funding for projects. Lastly, The unpredictability of U.S. policy adds risk. Development lenders typically value stable policy frameworks; sudden tariff threats or aid cuts can make project planning more difficult. Each of these factors can dampen the flow of foreign capital into African infrastructure projects. Investors may demand higher risk premiums or wait on the sidelines until U.S. policy stabilises. This reality places a premium on creditworthiness and risk mitigation in African financing deals.

Given these uncertainties, African governments, development banks and sovereign funds must adapt their strategies. With U.S. policy volatility, many in Africa are strengthening ties with other partners. Notably, China has moved aggressively. China announced zero tariffs on all imports from 53 African countries (60% of African exports) as of June 2025. This sweepingly favourable treatment contrasts with the conditional U.S. AGOA preferences.

African exporters and infrastructure projects can seek Chinese financing (e.g. via China Exim Bank or the China-Africa Development Fund) under these new conditions. This could mean more projects (ports, power plants, roads) financed through Belt & Road or other Chinese vehicles, leveraging the zero-tariff boost to goods. Similarly, European and regional partners (e.g. the EU’s Global Gateway, African Development Bank, World Bank’s IFC) should be engaged as reliable sources of funds.

The biggest near-term source of funding may be internal savings. African pension funds and insurers collectively hold over $1.1 trillion. Governments and development banks must improve regulations and incentives so that these funds can flow into local infrastructure. For example, an AFC report recommends reforming pension regulations to allow stable, long-term infrastructure investment. Strengthening local capital markets (e.g. infrastructure bonds), and aggregating projects to match pension fund scale, can channel domestic pools into critical projects. This reduces reliance on fickle external flows.

(Source: Sate of Africa’s Infrastructure Report, 2025)

Governments should prioritise projects with strong economic and social payoffs. For instance; renewable energy and transport. A recent UNDP report highlights energy, food/agri, and digital infrastructure as high-return sectors. Such projects not only aid development but also can generate hard-currency export earnings (e.g. agricultural products) which in turn help stabilise debt levels.

(Source: https://www.inonafrica.com/2025/01/21/where-investors-are-eyeing-africa-for-opportunities-in-2025/)

Strengthening the investment climate is key to attract any capital. This includes improving governance, transparency, and tackling corruption. It also means developing local currency debt markets so that projects can be financed in local rather than foreign currency. By building resilient institutions and sound fiscal policies, African countries can better withstand external shocks (currency swings, commodity price drops) and lower risk premiums.

The intersection of U.S. trade unpredictability and fiscal expansion – epitomised by the “TACO trade” meme and the “One Big Beautiful Bill” – creates both risks and signals for Africa’s infrastructure agenda. Short-term market jitters from U.S. tariff threats have been shown to reverse quickly, but the underlying uncertainties remain. Trump’s tilt from aid to trade, combined with looming tariffs on commodities and manufactured exports, could dampen U.S.-linked investment and aid flows. Simultaneously, the U.S. fiscal surge is likely to tighten global financial conditions, raising costs for African borrowers.

For African development banks and sovereign investors, the key will be resilience through diversification. Greater engagement with stable partners can compensate for U.S. uncertainty. Unlocking and leveraging Africa’s own financial resources is equally crucial. By focusing on high-impact, high-return projects and using innovative blended-finance models, Africa can continue to mobilise capital despite global headwinds.

Ultimately, the flow of capital to Africa’s infrastructure will depend on risk management and policy coherence. Policymakers and investors must navigate the new landscape by hedging against the “Tariff rollercoaster” and seizing opportunities. With the right strategies, African development goals can still be advanced even amid the turbulence of U.S. trade and fiscal policy.