Charles’ Note: If there’s one company that should be tariff proof, it’s Netflix. After all, tariffs are supposed to be on tangible “stuff.”
Netflix is a streaming service. Services don’t arrive in shipping containers. And how U.S. Customs and Border Protection even calculate a tariff on something that streams over the internet, let alone collect it?
And yet…
Just last weekend, President Trump announced a 100% tariff on movies produced outside the United States, sending the shares of Netflix and most other media stocks lower.
Trump has promoted tariffs as an alternative to income taxes. That sounds great on the surface. I hate paying federal income taxes, as does every other red blooded American.
But the high tax rates – while infuriating – aren’t what enrages me the most.
It’s the complexity, opacity, and corruption that makes me seethe.
The income tax code is 70,000 pages long, with most of it special exemptions and carve outs.
If you’re big enough to make generous donations to your congressman’s reelection campaign, you might conveniently find a new tax write off that favors your business written into the tax code!
The rest of us? Not so much…
The official corporate tax rate is 21%. The effective rate – what companies actually pay – is around half that, according to the U.S. Government Accountability Office.
Last month, Trump slapped a 10% tariff on all goods along with higher rates on goods from some countries and really high 125% tariffs on Chinese goods.
As soon as those rates went into effect, the exemptions and special side deals started popping up.
Apple made sure that there was a carve out for consumer electronics.
Big Pharma did the same for pharmaceuticals.
Auto exemptions have been proposed.
We now have a tariff system every bit as messy, complicated, and subject to arbitrary government meddling as the income tax it was introduced to replace.
And given that the administration is working on 200 “bespoke” trade agreements with virtually every country in the world, it’s only going to get worse.
Lovely.
As always, I turn to my veteran market commentator Bill Bonner to help me make sense of it all. As founder of Bonner Private Research, Bill has dedicated his life to understanding market insanity and using that knowledge to invest successfully. The man’s been connecting the dots for longer than I’ve been alive.
Here’s what he has to say about the latest tariffs on international movies…
Lights… Camera… Action
The “check engine” light is on!
The latest, from USA Today…
In a social media post on May 4, President Donald Trump announced he’s authorized his administration to slap a 100% tariff on movies produced outside of the U.S. because, as he put it, “the Movie Industry in America is DYING a very fast death.” He called the incentives used to bring filmmakers and studio productions to other countries “a National Security threat” and “propaganda,” and concluded his message by writing, “WE WANT MOVIES MADE IN AMERICA, AGAIN!”
Yes, dear reader, movies made outside the U.S. are now a National Security Threat!
Maybe he’s right…
There are a lot of foreign movies that make you think. No leader wants that!
Just watch the 2022 German movie All Quiet on the Western Front. You are likely to come away with less than full and unlimited support for America’s DUI hire, Pete Hegseth, and his “lethal” war-fighters. General Erich Ludendorff had pretty “lethal” forces too. At the least, you might wonder whether killing one another for no apparent reason is such a good idea.
Ditto the two great classics on Stalingrad – one is told from the German point of view… the other from the Soviet perspective. Both are grinding, punishing, relentlessly somber views of block-headed military leaders and blind obedience to them.
Then, of course, there is the classic War and Peace. The 1967 Soviet-made epic goes on for seven hours. We’ve never seen the whole thing… but it leaves you with three worthy insights: Following “Big Man” leaders is dangerous. Empires fall as well as rise. And it is not a good idea to invade Russia.
Then there are all those movies – surely intended to undermine U.S. jefes – that question the competence and moral authority of government. The French Algerian movie Z, for example, starring Jean-Louis Trintignant, is clearly meant to shake our faith in armed, assertive leaders.
And then, there’s the great English movie, V for Vendetta. It makes you doubt the goodwill of “the State” generally… and leaves you suspicious of its efforts to force you to do things you don’t want to do.
And how about Bitter Harvest, a Ukrainian movie about the great famine Stalin engineered and government employees carried out during the 1930s? The “Holodomor” resulted in as many as five million deaths.
There’s also the 1927 German movie – Metropolis – made by Fritz Lang. In 2008, a forgotten reel of it was discovered in a museum in Argentina. It was used to reconstruct the film in its entirety. There are many parts of it that seem silly and naïve, to us… but its main message – that you can’t trust the feds – is still not one the Big Man in the White House would want you to get.
The Germans have seen what happens when the feds go wrong. The Lives of Others focuses on the way the secret police in East Germany tried to prevent anyone from getting “Western” ideas. It is a marvelous film that highlights the courage of a single spook who surreptitiously undermines the police state.
Talk about a quagmire!
The film industry is perhaps the most “internationalized” in the world.
Just look at the 1971 film Viva la Muerte – another movie that disses government authority. Shot in Algeria, France, Spain, Italy, Portugal, Brazil, Philippines, Morocco, and Tunisia and directed by Fernando Arrabal – the film is both subversive and globalized.
How would you tariff it?
A director from Italy… shoots a movie in Africa… with a script written by a German… for a U.S. studio, owned by a London-based hedge fund. And Trump wants to tax – with a 100% tariff – the non-U.S. parts?
What a field day… a dream come true… a deep, dark swamp for lobbyists, lawyers, accountants, and fixers to splash around in!
There are at least a dozen major steps to making a movie. Today, they are farmed out to the sources all over the globe… producers always trying to get the best, most appropriate quality at the lowest price.
Who knew this would compromise U.S. national security?
But if Trump gets his way, a whole army of hacks will get busy, undermining the free market choices of people with real skin in the game… and destroying the U.S.-based film industry.
But at least it could be entertaining. We can look forward to a whole new genre of remakes. “An American in Paris, Texas,” for example. Or, “Baltimore Holiday,” with Hollywood’s next Gregory Peck and Audrey Hepburn (maybe they will have tattoos and piercings!)
And of course, the “Spaghetti Westerns” filmed in Spain and Italy and starring Clint Eastwood, could easily be remade in the U.S. Maybe they will be renamed the “Chick-Fil-A Mid-Westerns”… filmed on set in Zanesville, Ohio.
All sure to be box office hits!
Regards,
Bill Bonner