Given its immediacy, it is understandable that much of the economic debate has focused on President Trump’s highly unorthodox import tariff policy. However, that should not divert our attention from the reckless budget proposal being put forward by the Trump administration. By threatening to put our public finances on an unsustainable path, this policy risks our long-term economic prosperity by potentially triggering a full-blown dollar and bond market crisis.

Economic commentators have been right to focus attention on the dark cloud that Trump’s trade policy is casting over the country’s immediate economic outlook.

That policy has resulted in import tariff levels not seen since the 1930s. Even after the recent China trade deal, the import tariff level is estimated to have gone up from less than 3 percent to around 18 percent. This is causing Federal Reserve Chair Jerome Powell to warn that those tariffs are likely to lead to an increase in price inflation and a slowing in economic growth.

Compounding the tariff’s likely adverse effect on the economy has been the chaotic way in which those tariffs have been imposed. One day, we have punitive reciprocal tariffs on 70 of our trade partners; the next week, those tariffs are paused for 90 days to allow time for trade deals to be negotiated. One day, we have a 145 percent import tariff on China, the world’s second-largest economy. A few weeks later, after considerable equity and bond market turmoil, those tariffs are rolled back to 30 percent for 90 days to allow a more permanent trade deal with China to be negotiated.

All of this has led to a spike in economic policy uncertainty. According to the St. Louis Federal Reserve, monetary policy uncertainty today is at its highest level since the COVID-19 pandemic in 2020. That uncertainty, along with the prospect of high tariffs, has contributed to a decline in consumer confidence to its lowest level in the last 12 years. It has also given rise to widespread business complaints that it has become increasingly difficult to make investment decisions in an environment where there is so much trade policy uncertainty.

The chaotic manner in which trade policy has been conducted seems to have undermined foreign investors’ confidence in the U.S. economy. This was underscored by the recent decline in the dollar and the U.S. Treasury bond market amid heightened global stock market turbulence. No longer does the United States seem to enjoy its long-held safe-haven status in times of global market de-risking. No longer, too, do foreign central banks seem to want to add to their large U.S. Treasury bond holdings.

Seemingly oblivious to the warning signs from the U.S. Treasury bond market and to the fact that an increased budget deficit would likely cause a widening in our trade deficit, the Trump administration is now pushing “a big beautiful bill” in Congress that would slash taxes. In terms of that bill, the 2017 Tax Cut and Jobs Act would be extended, income taxes on tips and overtime work would be eliminated, and a bonus $4,000 tax deduction would be made available to all those over the age of 65.

Even before the Trump tax-cut proposal, the U.S. public finances were on an unsustainable path. The budget deficit had ballooned to 6.2 percent of gross domestic product while the public debt had risen to nearly 100 percent of GDP. According to the Committee for a Responsible Budget, if enacted, the Trump tax-cut proposal would add $5 trillion to the deficit over the next decade. That would cause our public debt to rise to 130 percent of GDP by 2034 or to a level that would exceed the one reached immediately after World War II.

Before proceeding with Trump’s “big, beautiful bill,” Congress might want to examine the United Kingdom’s unfortunate 2022 financial market experience, which was marred by the then-prime minister Liz Truss’s reckless budget proposal. In response to that budget deficit-busting proposal, UK government bond yields soared, and the pound sterling collapsed. That forced the UK government to make an abrupt and politically embarrassing major budget policy U-turn.

We hope the Trump administration takes note of the uneasiness already evident in the Treasury bond market. Maybe then it will substantially water down its tax-cut proposal to something more consistent with long-run budget sustainability.

Maybe then, it might spare us a Truss moment that could damage our longer-run economic outlook. However, judging by the chaotic way in which Trump’s tariff policy has been pursued, I am not holding my breath for that to happen.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a Deputy Director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.