Mission improbable: Donald Trump's movie tariff proposals defy logic

American President Donald Trump’s tariff wars on the global goods trade were launched on the assumption that the United States (US) suffered because it ran huge deficits with most countries, so protective duties would bring investment and jobs back to the States. Most economists have described his reasoning as seriously flawed. It doesn’t require academic experts, however, to see the President’s decision to levy a 100 per cent tariff on films made in foreign countries as objectively irrational. Mr Trump appears to think that the US film industry has been “decimated” and has acted on the advice of one of his three “special ambassadors to Hollywood” Jon Voight (Mel Gibson and Sylvester Stallone are the other two) to promote business opportunities in the US’ globally famous film hub.

 

To start with, movies come under the rubric of services and hence this move appears to signal the extension of tariffs into the realm of services. The need to do so is not immediately clear. The US has consistently run a trade surplus in movies. According to one estimate, in 2023, the latest year for which figures are available, the US had a $15.3 billion trade surplus from films. As with the trade wars in goods that have been ignited with the US’ chief trade partners, this move could spark reciprocal restrictions and could hurt Hollywood in the process. The industry earns most of its box-office revenue overseas. Last year, about 70 per cent of the $30 billion ticket sales globally came from outside the US and Canada. In this, as in myriad other ways, Mr Trump will be compromising the US’ soft power. As with Mr Trump’s blockbuster announcements, there are more questions than answers around this latest initiative. Does it also apply to productions made by American film companies but shot outside the US? Would it apply to streaming services such as Netflix, whose shares crashed on Monday along with those of other production houses? How would the rates be calculated in that case? Though no one in the administration appears to have the answers, it is typical of Mr Trump’s customary brinkmanship that he said he would meet with industry executives first to see if they “liked the idea”.

 

The notion of making Hollywood great again stems from the same concerns Mr Trump expresses for manufacturing: Jobs for production-related services, which have moved overseas. The fact is that US moviemakers have been moving outside the country for almost a decade with production costs in California becoming prohibitively expensive. The United Kingdom, Australia, New Zealand, and Canada have emerged as preferred cost-effective destinations. To bring production back to the US, the industry has long demanded federal tax incentives to lower costs, as competing destinations have done. Despite these constraints, the US remains a dominant global force in films and TV. The Indian and Chinese industries may be large but their audiences are primarily domestic (the US accounts for 5-7 per cent of box-office revenues for Indian movies). The top 10 grossing films in the US were all American. Among the world’s top 100 highest-rated films, Hollywood accounts for around 90. In other words, Hollywood is great. It doesn’t need tariff protection to become great again.