Once you start talking about tariffs, it’s hard to know where to stop. Cars, food, shoes, steel, aluminum, pharmacist products and a multitude of other products are included in the Trump administration list. Why not add movies? President Donald Trump did exactly that on May 4, proposing to start taxing movies made abroad at 100%.
He said film rates were necessary to prevent Hollywood from dying a “very fast death.” As exactly the government would collect a rate about movies was not clear. Nor was it obvious that movie rates would strengthen film production in California or that they would receive a lot of consumers support.
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Frankly, as a movie spectator, do you really want to pay more to watch movies made abroad? These problems themselves made the idea unpopular, with industry groups and Hollywood unions saying they preferred tax exemptions, not tariffs.
But there is another problem with the idea, one even bigger. He didn’t get much attention, but it’s deep. Movies are a service, not a physical product, and services are an area where the United States is an exceptional country.
Technology giants that dominate the stock market, such as Alphabet (Google), Meta (Facebook), Microsoft and Netflix, are service companies, to a greater or lesser extent, and Apple, Amazon, Nvidia and even Tesla have large service components. Banks, asset management companies, law firms, universities, health, the entertainment industry, tourism, the news sector and many other areas where the United States stands out also fall into it.
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“Great Bazuca”
If Trump administration began to impose taxes on US international service purchases, other countries would be tempted to retaliate. The core of the modern American economy – and the stock market would be vulnerable. No wonder the European Union has added to its diplomatic arsenal a “anti -corruption instrument” that informally calls “great bazooka”.
It is a dry legal formulation, but with immense hidden power: Bazaca allows Europe to respond to economic bullying cutting or heavily taxing social media platforms and other advanced computing services, restricting intellectual property rights, as well as facilitating actions against traditional targets such as imported goods and direct foreign investment.
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It has been kept in reserve as a final weapon that is very dangerous to be used casually, as this would invite additional retaliation and deprive Europeans of access to services they need.
Interestingly, the Great Bazuca originated in an EU dispute with China, but could be directed against the United States, which would be a tempting target. This is because service industries, not manufacturing, tend to master advanced economies, and in this regard, the United States are world leaders.
Almost 80% of US domestic economy is dedicated to services. In China, in contrast, the services still represent just over 50% of the economy, according to the International Monetary Fund. The United States also exports many of its services. In fact, the country has a large commercial surplus in services.
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The huge US commercial deficit in goods is the unfortunate focus of Trump management – unhappy because most economists have no problems with the commercial deficit, but with Trump’s tariffs. But services, including artificial intelligence, are widely seen as critically important areas of themselves, and increasingly services are dominant business parts that were previously mainly manufactured concerns.
Take the newspapers. They were tangible manufactured products when I started in the business. Now, while the physical newspaper continues, this is mainly a digital information business. Business classification systems have evolved to take such transformations into account.
“We recognize that the emergence of the age of services and the availability of global communications changed the focus of the consumer producer market,” said S&P Global Indices and MSCI, the financial information services that together classify publicly traded companies. They added that “drawing the line between goods and services is increasingly difficult and arbitrary, as almost all goods are sold with a service.”
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The US Economic Analysis office depends on a variety of research to determine how much a business is dedicated to services and the production of goods, said Thomas Dail, the office spokesman. “The intention is to capture the entire universe of services and count them,” he said.
Trump’s tariffs on goods, which come and go, caused an abundance of chaos around the world. Impose fares about services as well, and the world would enter a new and dark phase of economic conflict.
In services, as well as in goods, Trump would be reversing decades of history. After all, liberalizing trade in services was a goal of the Uruguay Round, an important series of international negotiations in the 1980s and 1990s. These conversations have led to a comprehensive global free trade agreement that is still incorporated into the rules of the World Trade Organization, although not always followed by the US President.
Restricting trade in services is the opposite of what most economists and trade negotiators have wanted. But the Trump administration has torn left and right agreements and threatens to place the world in a new course.
Still, there is little evidence that opening a second front in the commercial wars was Trump’s intention, who said he just wanted to help Hollywood. His advisers on the subject, including actor Jon Voight, have focused mainly on tax cuts and subsidies such as preferred tools, not tariffs.
If the world is lucky, the idea of imposing rates on movies will be forgotten in the flow of new, suspended and canceled trade initiatives being announced every week. Otherwise, it may not only be Europe that could be tempted to use a large bazaca against US service companies. The stock market has been notably resilient this year. But imagine what would happen if large US technology companies were threatened. This could be a disaster movie that the world doesn’t need.
This article was originally published in The New York Times.
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