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First it was autos, then steel and aluminum, then anything made in China—and now it’s movies and presumably television series and streaming production–that have become targets of Donald Trump’s tariff obsession. The fact that motion pictures and TV series are often multifaceted international productions, where financing, filming, editing, VFX and various elements of post-production take place in different locations, many of them not in the US, (although most US films see final production wrapping up at home) seems not to have occurred to the President. The production supply chain is complex for a number of reasons; specific locational needs for shooting, availability of sound stage and studios, financial incentives, access to specific expertise, and so on. (Lord of the Rings and the Hobbit were primarily produced and post-produced at Peter Jackson’s Weta Workshops in Wellington, NZ, for a good reason. Jackson and Weta are the best at what they do.)

The end result of this integrated supply chain for Hollywood is an industry that produces an amazing range of content. Last year there were 569 Hollywood films released in the US and Canada, less than 2019 but a considerable increase from the depths of COVID. This industry is one of America’s export successes. The movie industry generates about 70% of its revenues from foreign distribution, and is one of the leading export industries of the United States generating $22 billion in exports in 2024, with a net surplus of over $15 billion. However, it is true that actual filming takes place less now in California than in the past. A lot of production takes place in other US states, Canada, Australia, New Zealand, the UK and in other countries, owing largely to financial incentives provided plus the presence of experienced crews, good locations and specialized expertise.

But back to Donald Trump and his threatened tariffs. If your sole goal is to reshore all US film production, regardless of the benefits from, or indeed the requirements of, an integrated international supply chain, threatening to impose a 100% tariff on all non US produced films (however that would be defined) is the absolutely worst way to go about tacking the problems facing the industry. It causes havoc and uncertainty, creating a situation where people around Trump have had to tamp down the panic by stating that many measures are under consideration, not just tariffs. But chaos is what Donald Trump wants, because it gives him the sole power to undo the chaos by changing gears (backing down, rethinking, changing course—whatever you want to call it). Shoot first, aim later.

This is what has happened to date on Trump’s Canada and Mexico auto tariffs and the global tariffs he unveiled in his Rose Garden “game show” television performance in which he announced tariffs on everyone, from countries like the UK that run a trade deficit with the US to islands in Antarctica populated exclusively by penguins. And then, when reality kicked in, the “Liberation Day” tariffs were “paused”. Despite the current suspension, the outcome of Trump’s various tariff initiatives will be higher auto prices for US consumers plus empty shelves in Walmart as Chinese products find markets elsewhere. Trump’s modus operandi is to announce something outrageous initially, (without worrying about the details, impact or practicality), wait for the cataclysmic reaction, then recalibrate (but never admit to backing down) in an effort to pick up the pieces of crockery he has just broken, assuming that he is actually aware of the consequences of his actions, or cares. It is a strange way to make policy. Oh, I forgot. It is The Art of the Deal.

Not only does the tariff proposal reveal a stunning ignorance of just how the movie industry works, but it would open a door to retaliation from the very countries where US movies are generating large returns. It would also introduce the concept of tariffying service exports (movies, banking and insurance, consulting services, advertising etc.), an area in which the US excels and runs consistent surpluses. The US film industry has worked hard to keep markets open and has generally succeeded in maintaining an open market model where, apart from censorship, few barriers exist to the distribution of US films abroad. China is the notable exception, but even in China (where all film imports are strictly controlled by government agencies), US films enjoy considerable market share. (The Chinese also impose a revenue-sharing arrangement that is unique).

In the past there were various obstacles to the wide takeup of US films, from screen quotas in Korea (a requirement that cinemas had to dedicate a set number of days to the screening of Korean films) to various means of imposing duties on imports of films. The shift from physical prints to digital distribution meant the bypassing of border measures that imposed duties on the physical incarnation of films. Moreover, pushed by the US, the World Trade Organization adopted a moratorium on the imposition of customs duties on digital products back in 1998, a “temporary measure” that has been renewed regularly, currently extended to 2026. The moratorium has been opposed by some developing countries, notably Indonesia, India and South Africa, arguing that they face increasing losses of customs revenues from the increasing digitization of products. Countries with weak taxation regimes often need to rely more heavily on tariff revenues than more developed economies. How ironic then that the US is now putting itself in the same camp as those countries that can only raise revenues when products cross the border. With his talk of imposing tariffs on films (the ultimate intangible commodity) produced outside the US, Trump has just validated the international opposition to the customs moratorium and made it much more likely that many countries will start to find inventive ways to impose duties on services trade.

There could not be a more self-harming outcome for the United States given that, according to USTR, service industries account for over two-thirds of US GDP and 4 out of 5 private sector jobs. In addition, in 2020, the US generated a trade surplus of $245 billion in exports of services. USTR also notes that “services trade enhances competition and innovation, lowers costs, and improves choice and quality for consumers and businesses”. Tariffs on services trade will lead to retaliation and a shrinking of service markets dominated by the US.

Imposing tariffs on services, which are intangible, is not easily accomplished, explaining in part why it has not been done to date. To assess a tariff, a value has to be established for the service, which has to be assessed in some way. How would an import duty be calculated? For durable goods, there is a code that assigns a category to each product, with tariff rates assigned according to the code. The valuation of the product at the port of entry combined with the tariff rate determines the amount charged. How would a film be valued? Production costs? Or only the portion of production costs incurred outside the US? (Imagine the green eyeshade work this would require to determine how to allocate costs). Perhaps it would be assessed on US revenues, but then how would one know how a film will do at the box office? And if box office receipts were factored in, you can be sure that distributors would bypass the box office for streaming release. Would you penalize US filmmakers if they chose a foreign location for financial reasons alone or would they be penalized for, say, wanting to film a desert scene with Bedouins and camels in Morocco instead of on a sound stage in California? Should they instead fly in camels to some desert location in the US?

From an international trade perspective, the Trump Administration could choose to target the tax incentives offered by foreign jurisdictions by imposing a countervailing duty (instead of a tariff) on “unfair” subsidies, as is done is some other areas of trade. Normally, determining what is an “unfair” subsidy is not an easy task and is subject to well established rules and procedures, particularly bearing in mind that many US states also offer financial incentives to attract film production. Moreover, each film is a unique product. It cannot be compared to alleged subsidies to produce lumber 2×4’s more cheaply than in the US. There is an elaborate quasi-judicial process, with appeals and trade agreement commitments, governing the determination of an “unfair” subsidy. However, Donald Trump has shown scant regard for the established rules and prefers the unilateral route. In doing so, he will open a new can of worms as targetted countries look for ways to push back. While many details remain to be filled in, Trump has managed to sow chaos and fear (his prime objective, it appears) and has caused deep concern amongst those engaged in the film industry, in particular in Canada, the UK, in Australia, but also elsewhere.

As with much of Trump’s “policy by tweet”, there is a kernel of a problem to address. Production in California has been declining for a variety of reasons. Costs are one, and the incentives offered by other US states as well as those jurisdictions competing for production work like Australia, Britain and Canada and others are part of the reason. California has been reluctant to match the incentives. COVID, the introduction of AI, changing viewing habits and the Hollywood actors’ and writers’ strikes are also major factors. Trump appears to like simplistic solutions (to complex problems), regardless of the collateral damage or unforeseen consequences. When Trump’s “Hollywood envoy”, 86 year old actor Jon Voight, apparently mentioned limited tariffs as a tool that could be used to bring film production back to the US, Trump grabbed the gun and fired. Shoot first, aim later. It’s worth noting that Trump’s picks to be his eyes and ears on the Hollywood situation includes only aged male actors. Industry executives who actually understand how Hollywood works were apparently not welcome.

Could tariffs be actually imposed on films? Maybe, with great damage. Tariffs are a very blunt instrument. But damage has already been done in terms of undermining confidence in the business model that has worked well to date, and which has brought a lot of film production work to California, even if a lot of the actual filming takes place elsewhere. Given that Trump’s objective is to create chaos, and then use that chaos as leverage, a lot of damage can be done to the film industry generally, and to film workers both inside and outside the US. Be careful. The medicine could be a lot worse than the disease, for the film industry and for US service industries generally.

© Hugh Stephens, 2025. All Rights Reserved

This article was originally published on Hugh Stephens Blog