Congress avoids default—at the cost of $3.4 trillion in new debt
President Donald Trump's so-called "One Big Beautiful Bill," approved by the Republican-led House of Representatives on July 3, extends his 2017 tax cuts, ramps up spending on border security and the military, and slashes Medicare and Medicaid, while sharply increasing the nation's debt burden. Trump is expected to sign it into law.
The legislation also raises the U.S. government's US$36.1 trillion borrowing cap by $5 trillion, heading off fears of a debt default this summer. Analysts had projected that the U.S. Treasury could have exhausted its borrowing authority by late August or early September without action.
While the bill calms immediate concerns, its long-term implications are sobering. Nonpartisan estimates say the legislation will add $3.4 trillion to U.S. debt over the next decade. That's on top of growing unease over weak demand for U.S. Treasuries—a trend that has unsettled financial markets in recent months.
"The bill contributes to some of the structural concerns around Treasuries, with respect to No. 1, ongoing fiscal deficit and elevated debt levels, and No. 2, inflation," said Mike Medeiros, macro strategist at Wellington Management.
BlackRock warned that foreign demand for U.S. government debt is weakening. "We've been highlighting the precarious position of the U.S. government's indebtedness for some time now, and, if left unchecked, we view debt as the single greatest risk to the 'special status' of the U.S. in financial markets," its investment managers said in a note.
The Congressional Budget Office estimates the bill will reduce tax revenues by $4.5 trillion, cut spending by $1.2 trillion, and cause 10.9 million people to lose federal health insurance over the next decade.
Though the bill includes provisions to stimulate growth—such as full expensing for business equipment and R&D—some investors remain cautious.
Campe Goodman of Wellington Management said the legislation could boost economic growth by 0.5 percent next year, but warned that markets may be overlooking the risk of rising borrowing costs. "We believe the One Big Beautiful Bill will accelerate corporate earnings growth, which ultimately will drive equity values," said Ellen Hazen, chief market strategist at F.L. Putnam. "But this could lead to higher-for-longer Treasury rates, making many fixed-income investments somewhat less attractive over the longer term."
On July 2, benchmark 10-year Treasury yields rose after several days of decline, partly due to renewed concerns over fiscal sustainability. Yields move inversely to prices.
Andrew Brenner, head of international fixed income at National Alliance Capital Markets, said the reaction was a sign that so-called bond vigilantes—investors who drive up government borrowing costs in response to poor fiscal policy—were active. "The Vigilantes want to see more deficit cutting... Their view is that Trump and Congress have not done enough," he wrote.
The bill's passage eliminates the risk of near-term debt ceiling disruption. In recent weeks, yields on Treasury bills maturing in August had risen above nearby maturities, a sign of growing default concerns.
"I think (the passage of the bill) takes some of the debt ceiling risks away, so yields on bills maturing in August might come down a little bit," said Vinny Bleau of Raymond James.
Market reaction has been measured. Many investors had already priced in fiscal expansion following Trump's return to the White House in January. The S&P 500 hit a record high on Wednesday, helped by tech stock gains and optimism over U.S. trade deals.
For now, investors appear more focused on the Federal Reserve's rate path and corporate earnings, said Robert Pavlik of Dakota Wealth. "It's not going to be the overall driving factor (for the market)," he said. "It's earnings first and then the Federal Reserve."
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Winnipeg Free Press
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But now, amid Trump's trade war, they're dealing with rising input costs as well as retaliatory bans on the sale of U.S. alcohol in major provinces, including Ontario, Quebec, British Columbia, Nova Scotia, and others. Last month, Alberta lifted its three-month ban on U.S. alcohol sales, but it remains in place elsewhere, and Ontario and Nova Scotia recently announced they would not order liquor stores to restock U.S. products. Ontario Premier Doug Ford has been vocal about the impact. 'Every year, LCBO sells nearly $1 billion worth of American wine, beer, spirits and seltzers. Not anymore,' he said. In 2024, the Liquor Control Board of Ontario reported more than $6.2 million worth of sales of beer from New England alone. While most small craft brewers don't export their products, larger ones do, and they stand to lose tens of millions of dollars in lost sales in 2025 alone as a result of the Canadian sales ban. This is another trade irritant irking the U.S., according to US Ambassador Pete Hoekstra. Like he did with Canada's now-dead Digital Services Tax, Trump may soon target these Canadian sales bans for leverage in the ongoing trade talks. Craft brewing was a tough business before the tariffs. Last year, for the first time in two decades, more U.S. craft breweries closed than opened. Now, with packaging costs rising and trade uncertainty mounting, it's enough to drive some brewers to … well, drink, and hope for policy shifts. Klein says policymakers should understand the demands Trump's tariffs are putting on smaller businesses. 'I think the policymakers need to understand that the only thing they're doing is increasing costs for small businesses,' he says, noting how they're punishing him for buying aluminum cans, which he can't source in America. Many American craft brewers notably do use U.S.-based distributors and suppliers, and Can One-USA, for example, set up shop just over a year ago to meet the needs of these smaller players, offering smaller minimum orders and warehousing options. But brewers with domestic supply chains are still facing higher prices, thanks to the market uncertainty. If trade tensions escalate, Klein warns that many small breweries may not make it. 'If the trade war escalated such that you couldn't buy cans cost-effectively from Canada or from somewhere else, and the American companies didn't lower their prices or lower their minimum order quantities, I think that would absolutely affect what we could do in the future.' As U.S. craft brewers grapple with soaring aluminum costs and squeezed margins, the retaliatory Canadian sales bans on American beer and liquor add a painful blow, cutting off their biggest export market and threatening millions in sales. Amid the trade tensions, many American breweries face an uncertain future where rising costs and shrinking access to shelf space have them wondering how long they'll be around to pull their next pint. National Post Our website is the place for the latest breaking news, exclusive scoops, longreads and provocative commentary. Please bookmark and sign up for our politics newsletter, First Reading, here .
