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This question already has an answer here:

For Example: 1.) Women turned Trump’s insulting “Grab’em by the pussy!” into “Pussy Hats” that they sported proudly in The Women’s March. 2.) Trump also attempted to humiliate Hillary Clinton by comments about her pantsuits, and both men and women rallied by founding “The Pantsuit Nation” and by proudly wearing pantsuits to express their support of HRC.

marked as duplicate by lbf, Edwin Ashworth, 1006a, choster, Mazura Jun 30 '18 at 1:43

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    Never forget what you are, the rest of the world will not. Wear it like armour and it can never be used to hurt you. - GRRM – wrymug Jun 29 '18 at 13:11
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    There might not be a specific term for that, but what it is, is "defiant irony" which is found referenced in many literary (and some social) contexts here and here: defiantly ironic. – English Student Jun 29 '18 at 13:38
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    '[A] specific term for nullifying an intentional insult by accepting it as a compliment?' does not necessarily involve foisting a new sense onto a word. 'You're crazy' ... 'Why, thank you'. – Edwin Ashworth Jun 29 '18 at 14:20
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    see also insult backfire: tvtropes.org/pmwiki/pmwiki.php/Main/InsultBackfire – dsollen Jun 29 '18 at 15:20
  • @EnglishStudent Yes. In the early stages of WW1, before the first battle of Ypres in November 1914, the Kaiser is said to have referred to the small British Expeditionary Force as "a contemptible little army". Veterans of that small force later identified themselves as The Old Contemptibles – WS2 Jun 29 '18 at 16:43
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This is called Reappropriation or Reclamation.

In sociology and cultural studies, reappropriation or reclamation is the cultural process by which a group reclaims terms or artifacts that were previously used in a way disparaging of that group.

2

TV Tropes calls it Insult Backfire:

…this is for when Alice comments on a trait of Bob's in a way that's intended to sound negative — but instead of being insulted, Bob acts flattered.

  • I upvotes because the insult certainly backfired! Maybe also say "insult epic fail?" – English Student Jun 30 '18 at 7:20
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less formal: oneupmanship and also to be one upped TFD

n. Informal The art of outdoing or showing up a rival or competitor, as in exploits, privileges, or honors.

Or:

go one better dictionary.com

To upstage, outshine, surpass someone or something.

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