“Hollywood is dying,” asserted President Trump, reportedly after talking to veteran actor Jon Voight, the 86-year-old father of Angelina Jolie.
Reaching for his trusty weapon of choice, Trump threatened to impose a tariff of 100 per cent on “foreign” films imported to the US. He was not referring to classic movies from France, Italy, India or even South Korea, but films funded by American studios and streamers which are produced overseas.
The scale of such out-sourcing is undoubtedly extensive, and is driven by three factors: the high cost of filming domestically, where trade unions have a tight grip on every element of production; the tax breaks for film offered by countries such as Canada, Hungary and — especially — the UK, which can also supply top-of-the-range studio facilities as well as high quality technicians and cast; and the need for specific locations, for films such as Tom Cruise’s Mission Impossible capers.
Trump’s musings instilled instant panic in the UK film and television production sector, where US money currently plays so large a part. That the recent “trade deal” announced by Trump and Keir Starmer made no mention of the movie tax only raised the level of anxiety. Yet a few moments of thought should have allayed the fears. This tariff proposal is a complete non-starter.
It is certainly true that American companies finance a great deal of film and television production outside the US. But designating such content as “foreign”, and trying to tax it if imported to the US, can only have two consequences. The first is that all other countries retaliate with 100 per cent tariffs on US films, whether made in America or elsewhere: given that a majority of all US film revenues are earned outside the US, this would devastate the American film industry. Virtually all the studios would be pushed into, or close to, bankruptcy.
The other consequence would be a disastrous impact on US cinema exhibitors, who — by law — are entirely separate from the production and distribution of films: quite different from the situation with streaming companies such as Netflix, which can freely exhibit on their own platforms the content they create.
As ticket sales would be the only transparent transactions that could effectively be taxed under a 100 per cent tariff regime, the revenues of the exhibitors — who are anyway in financial distress because of the growing popularity of streaming platforms — would crater. To avoid sharing large parts of their turnover with the US Treasury, the exhibitors could boycott movies made outside the US, so as to duck the tariff: but their revenues would plummet anyway in the absence of many major titles.
Indeed, insult would be added to injury, should the streamers who finance many “foreign” movies ignore the boycott and continue to show them on their services, thereby accelerating the shift from watching movies on cinema screens to viewing at home. The streamers would be safe in the knowledge that there is no actual transaction to tax when the titles they own are offered to subscribers as part of their regular entitlement, thereby incurring no internal cash transfers.
If Trump were to press on with his 100 per cent tariff, and all other countries where films are made responded in kind, American producers would suffer a double whammy. Not only would domestic receipts decline, as exhibitors shunned imported studio product, or tariffs swallowed a large chunk of box office takings, but their sales to the rest of the world — 53 per cent of all cinema receipts — would be decimated by reprisal tariffs.
Paradoxically, in such a scenario, the incentive to repatriate overseas production would be at best marginal. The same cost and tax considerations that currently drive movie-making abroad would persist. And Hollywood itself would continue to be one of the least attractive options.
What President Trump seems not to realise is that Hollywood’s biggest problem lies much closer to home: in the shape of the 38 other US states that offer tax incentives to movie makers. Neighbouring Arizona is providing $125 million in film tax breaks this year, with up to 25 per cent of the budget claimable. Next state along is New Mexico, where many under-employed film technicians have re-located to the busy Netflix studio complex in Albuquerque, prospering thanks to the state’s tax regime. California is fighting back, by more than doubling its available tax credits to $750 million this year: but its deeply-entrenched labour costs will continue to be a drag on its appeal to producers.
Tariffs are not only not the answer to Hollywood’s woes, but if implemented would almost certainly deeply damage the US film industry
California’s governor has rejected the idea of tariffs, but is more positive about variations to the initial Trump proposal, such as reducing corporation tax on domestic productions, or even offering Federal tax relief on films 75 per cent made in the US by US nationals. Another idea being floated is to introduce the mandatory separation of platform and content ownership, but there are formidable obstacles to such an approach, in that the rule would be virtually impossible to enforce outside the US, and might even incentivise the likes of Netflix to avoid production in America.
Tariffs are not only not the answer to Hollywood’s woes, but if implemented would almost certainly deeply damage the US film industry, especially exhibition. Indeed, Trump would be better advised to advocate progressive elimination of tax breaks, internationally and domestically, allowing Hollywood’s unions to choose between sinking or swimming, and producers more latitude to make creative decisions that are not distorted by artificial factors. A highly profitable industry, paying its taxes in the US, is of much more value to the US Treasury than an unpredictable tariff system capable of inflicting unanticipated damage.
Eliminating tax breaks in the UK — which have helped fuel inflation in drama production costs to prohibitive levels for public service broadcasters — would be bitterly resisted by their current beneficiaries. But handing over £1.5 billion a year — enough to reverse the winter fuel allowance cuts — to American companies in exchange for zero by way of intellectual property rights seems like a poor bargain. I will make the case for abolition in The Critic magazine’s July edition.
