On May 4th, Donald Trump announced that he had planned to introduce a 100% tariff on all films made outside the United States, usually in an inconsistent language. He did not reveal whether it meant all foreign-made films or whether it meant a film that might be considered American, but was made entirely or partially elsewhere. Since Trump is not known to be an original thinker, where did this idea come from?
Trump lost California in 2024. Not populated rural areas, but metropolitan cities such as San Francisco and Los Angeles, the state's film production center. He is drawn to the ego for Hollywood. He wants to be liked there. In January he nominated three Republican actors, Mel Gibson, Sylvester Stallone and John Voight, as Hollywood ambassadors. Most people thought: So what?
It appears that only Voight took this role seriously. He has had some research and resonated in Hollywood and has heard long-term complaints from US labor unions. He came up with a five-page plan to save Hollywood and attract “run-control production” to the United States. This includes many existing state tax credit/incentive schemes, plus proposals for federal tax credits of 10-20% and new tariffs on offshore US-enrolled productions, which amount to 120% of the value of the foreign tax credits.
Voight met with Trump a day or so of the truth social announcement. It appears Trump has absorbed from the meeting what he described as his favorite word “customers.”
American labor unions have been raising concerns about “run-control production” since the 1940s, when Hollywood producers began to embrace the benefits of incentives they found in Europe, cheaper labor costs and exchange rates. The same kind of incentives then attracted them to jurisdictions, including Canada and Australia.
From the 1990s, three factors worked to send more US production offshore. The first was an increase in the number of original series aired by the cable network. Countries like Canada have been increasingly competitive with domestic producers in the US, especially since the late 1990s, when Canada and several provincial governments introduced financial incentives to attract production.
However, production increased dramatically when Netflix created its first international streaming service based on original content. With the success of Netflix, Apple, Amazon and other studios launched their own streaming services and commissioned the original content. In 2024, Netflix alone spent US$16.2 billion on films and TV series.
The second factor is the rising cost of production in the US for both feature films and television production. Large budgeting features can easily spend more than USD 200 million.
The third was the adoption of digital technology that revolutionized the production process, both in terms of image capture and the development of highly refined animation and visual effects. It also had the effect of decentralizing work in post-production and video effects. Vendors can be found almost everywhere in the world far from the ultimate creative decision makers, but they still work collaboratively and efficiently. For Australia, this has led to the growth of a strong visual effects sector, focusing primarily on exporting services.
In an October 2024 paper from the Film Association (Industrial Association of Hollywood Studios), British consultant Orsberg SPI reported that 120 production incentives are being offered worldwide. Usually they come as cash payments or tax credits calculated as a percentage of production expenditures in the jurisdiction that provides incentives.
In Australia, for example, the federal government offers location incentives for physical production, as well as post-production and digital VFX offsets. The state offers an additional 10%. The conditions attached to these incentives are designed to promote local training and development.
These incentives were $1.2 billion international production between 2022-23, and $768 million in 2023-24 attracted these incentives. Similar incentives are offered in major destinations in the US production, Canada and the UK.
However, incentives alone do not attract production. The jurisdiction also requires studios and other production facilities, as well as a pool of appropriate skilled individuals.
The Hollywood Workers Union has long complained about the impact of runaway production on American jobs. During a parliamentary hearing in the early 1960s, urged by union pressure, Labour representatives argued that foreign governments were suppressing free trade. The Motion Picture Association's counterargument was that runaway production has become essential to the viability of the film industry.
In 2000, in response to a trade union's demand for sanctions against countries that attracted runaway production, Vice President Algore asked the International Trade Bureau to investigate the subject. Although incentives are involved in changes in production, globalization, rising US wages, and technological changes – have transformed what was once a unique American industry into an increasingly dispersed global industry. He also pointed out the complexity and uncertainty of taking international trade enforcement measures to resolve the issue.
Therefore, Voight is the latest opponent in the globalization of US production, hoping to return to what he believes the industry is a natural home. The question is whether he not only is he happy to act like that with Trump, but he also has a president.
Trump has overcome more than 70 years of US defense and progress in trade liberalization, courtesy of his tariff preferences, despite turning the way it is when and how big it is. These taxes apply to products only, but movies and TV shows are complex combinations of services that are much more difficult to determine where tariffs apply. Single shots now include elements from several jurisdictions.
In any case, Voight's proposal will be used to use tariffs to override the cost benefits of foreign incentive production, rather than imposing a penalty that doubles the cost of offshore production (as Trump suggests).
Trump's plans also face other issues. More than 25 years of agreement by the World Trade Organization and suspensions on all forms of e-commerce obligations have continued in almost all bilateral and multilateral agreements. If the streaming services are not e-commerce, what are they? Therefore, there can be many unintended consequences when trying to solve the problem of running wild production due to tariffs.
For much more specific reasons, there are ideas for federal tax incentives, along with 38 state-based incentives in the United States. California Gov. Gavin Newsom proposed a debate with Trump about how that would be achieved. (California has had its own incentives for many years, and Newsom is under pressure to increase it.)
Federal intervention faces two other problems. The increase incentives is one thing, but the US industry needs to have production facilities and personnel to accommodate production returning from overseas. This means a significant increase in infrastructure and training investment. It is unrealistic to imagine that the current level of production due to the current US could be accommodated back in the home.
Another problem is that jurisdictions that invest in attracting runaway production increase the likelihood of a trade war without, for example, returning it to the US without some form of retaliation action (such as a higher incentive).
Perhaps it turns out that Trump's statement is merely a thought bubble. But until he clarifies what actions his administration will take, if any, uncertainty stunts spending, production drops both internationally and in the US, making it clear that the opposite of what Voight and Trump want to achieve. •
