Accounting
Trump’s growing focus on tariff revenue raises trade war odds
President Donald Trump and his economic team are increasingly focusing on the revenues his tariffs would generate as he seeks to get tax cuts through Congress, pointing to an ominous path ahead for countries trying to avoid a trade war.
Trump needs as much revenue as he can get as Republicans in Congress are working to iron out a plan to extend the 2017 tax cuts that are due to expire later this year, along with additional cuts, at an overall
The White House has touted using tariffs for everything from reducing trade imbalances to increasing leverage over countries to hammer out deals. Economists question Trump’s logic, warning that tariffs will lead to slower growth and thus declining government revenues while also prompting retaliation from other nations.
But comments by Trump and his top economic advisors on Thursday showcased their growing emphasis on using tariffs as an income generator for the government.
In a social media
Another part of the revenue answer, according to the Trump administration, is spending cuts being identified by Elon Musk and his Department of Government Efficiency, which so far claims to have found some $55 billion in savings, although questions have been
Increasingly, though, the White House is talking up the lengthening list of tariffs that Trump has rolled out or threatened.
Speaking to reporters on Thursday, Kevin Hassett, head of Trump’s National Economic Council, said a 10% levy on imports from China introduced earlier this month would generate “between $500 billion and a trillion dollars over 10 years.”
Separately, Commerce Secretary Howard Lutnick told Fox Business that an order by Trump to impose “reciprocal” tariffs aimed at other economies’ tax and regulatory barriers alone could “earn us $700 billion a year.” Trump’s trade czar
Tariff throwback
The U.S. depended on tariffs as the major source of government revenues through the 19th century, which Trump has pointed to as inspiration for his belief in the revenue-generating powers of import duties.
But the federal government was much smaller then and everything changed with the introduction of an income tax in 1913. Since the Second World War, tariffs have never generated much more than 2% of total federal revenue, according to a Congressional Research Service
The U.S. imported $3.3 trillion in goods last year, according to official
If maximizing revenues was the goal, a U.S. tariff rate approaching 50% would be optimal and result in $780 billion in revenues, economists at the Peterson Institute for International Economics
Pursuing that as policy in the longer term “would actually lose revenue because of the contractionary consequences of such high tariffs,” the economists said.
Since the 1930s, U.S. trade policy has mostly focused on lowering tariffs in order to convince other countries to do the same, while opening up new markets for U.S. goods.
Trump and his supporters argue that hasn’t worked and point to China’s rise as the world’s manufacturing superpower as evidence.
“It’s a huge departure” from decades of U.S. trade policy and one that could lead to higher prices and slower growth, said Mary Lovely, another economist at the Peterson Institute.
It could also backfire politically, she said. President William McKinley ultimately changed his mind on tariffs after what amounted to a working-class revolt against higher prices. That episode set the stage for the shift to income taxes.
Trump and his aides are pitching the tariffs as a tax paid by other countries. But studies
In the wake of the 2024 election in which inflation was a big driver of Trump’s victory, “those reasons to not like a tariff still exist very much,” Lovely said.
Fiscal priority
Republicans in Congress are receptive to the idea of higher tariff revenues in the short term, even if there are questions about how they can factor them into their accounting under the rules they have to abide by to expedite passage of a tax bill.
“When you care about the fiscal health of the nation as a whole, you have to look at the possible influx of future revenues that could come from the president’s trade proposals,” Representative Jason Smith, chairman of the influential Ways and Means Committee told Bloomberg Television in February.
That domestic priority is likely to compete with any plans Trump may have to also use tariffs as a tool for economic diplomacy.
Focusing on revenues could also create an entirely new dynamic for U.S. trade officials used to zeroing in on lowering trade barriers rather than generating income, said Daniel Mullaney, a former top U.S. trade negotiator now at the Atlantic Council think-tank. Though that is how many developing countries like India have historically approached negotiations, he said.
“That’s the new part,” Mullaney said. “Now we are considering the tariffs and lowering tariffs as revenue foregone and raising tariffs as revenue coming in.”
If raising revenues is Trump’s real tariff priority, it would make it very hard for the European Union and U.S. to avoid an escalating trade war in the months to come, said
“That’s not good from the European perspective,” he said. “It’s clear that all of this suggests that there is not really much that you can actually negotiate.”
The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.
The
- ISA 620, Using the Work of an Auditor’s Expert;
- ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
- ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
- ISRS 4400 (Revised), Agreed-upon Procedures Engagements.
The IAASB is asking for comments via a digital response template that can be found on the
In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.
President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an
The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings.
Trump has
Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.
Food prices could rise by 2.6% in the short run due to tariffs, according to an
The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.
Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist
Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time.
“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said.
One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load.
“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai.
Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies.
“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.
However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area.
“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai.
As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales.
“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai.
While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves.
“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”
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