Trump, Tariffs, and Tinseltown

China film lawyer

Last Tuesday, U.S. Trade Representative (and Trump appointee) Robert Lighthizer released a statement explaining that his office would seek to impose a second round of tariffs on Chinese imports, this time 10% tariffs on an additional $200B in imports. The first round of tariffs, which went into effect on Friday, July 6, imposed tariffs on $34B in imports, and was quickly matched by China’s imposition of tariffs on $34B in US exports to China.

The USTR is justifying its actions on a wide range of unfair trading practices by the Chinese government, including forced technology transfer, theft of IP and technology, improper government subsidization, and lack of reciprocity.

The USTR has released a tentative list of 6,031 product categories that, in aggregate, represent approximately $200B worth of Chinese imports. Included on this list, to the chagrin of almost everyone in the entertainment industry, is the following category: “Motion-picture film of a width of 35 mm or more, exposed and developed, whether or not incorporating sound track.” The list also includes motion picture films of a width less than 35mm, but it is silent as to whether this would extend to movies on digital media, which is how the vast majority of films are distributed these days. See Rule (4) above.

Industry observers have been trying to figure out what, if anything, this means to the Chinese film industry, the US film industry, and the interaction between the two. From an economic standpoint, putting tariffs on motion picture imports from China is solely a symbolic gesture. China would love to be exporting films in such quantities that these tariffs would hurt, but as we wrote in What The Chinese Film Industry Versus Hollywood?, Chinese films simply don’t do business in the U.S. In the past 10 years, the highest-grossing Chinese films in the U.S. have been The Grandmaster (2013, $6.6M), The Mermaid (2016, $3.2M), and Wolf Warrior 2 (2017, $2.7M). Multiple U.S. films gross more than $100M in China every year.

Putting all this together, it seems possible (if not likely) the Trump administration is baiting the Chinese government to retaliate against the liberal redoubt of Hollywood. China would love to see Chinese films dominate the Chinese box office, and they certainly don’t care about protecting American business interests. But they also don’t want to do Trump’s dirty work for him.

At this point, all options are open to the Chinese government, and they have even more political cover to take whatever action they like. My guess is they won’t do anything except use the threat of tariffs as an excuse to postpone the already-interminable negotiations over the revised film quota and profit-sharing arrangements. How can they possibly reach an agreement on film imports with the threat of retaliatory action hanging over the entire process? This way, the Chinese can have their cake and eat it too.

Of course, it’s also possible the Trump administration didn’t think about any of this too deeply and everyone is reading in complexity where there is none. Being There, anyone?

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