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Tariff Threats Target Film. Is Digital Content Next?

  • Writer: Laura Kerksiek
    Laura Kerksiek
  • Jun 3
  • 9 min read

Updated: Jul 5

Summary


  1. The recent tariff conflict between the Trump Administration and Hollywood is likely short-lived and unlikely to impact tariffs on digital content.

  2. Current customs and tariff frameworks do not support imposing tariffs on digital goods.

  3. There is strong precedent for keeping digital trade tariff-free while still supporting the U.S. economy. Companies can confidently align with the ongoing momentum in policy advocacy to maintain this stance.


1. Tariff Conflict Between Trump and Hollywood

Summary: In May 2025, President Trump posted on social media that he would impose a 100% tariff on movies produced outside the U.S. Hollywood responded by advocating for alternative tax incentives that would strengthen the U.S. economy more effectively than tariffs. President Trump subsequently backed down, assuring he would not harm the film industry, making the dispute likely short-lived.

Hollywood’s response to President Trump was a brilliant example of diplomacy. It emphasized partnership and offered specific, constructive solutions to boost the economy which align with existing legislative actions and President Trump's strong support for American industries, particularly the long-overdue revitalization of the film sector.


The letter accomplished three strategically important objectives:

  1. Clarified the economic rationale behind foreign film production—explaining that many U.S. productions are filmed abroad due to competitive tax incentives and financial benefits offered by other countries, which ultimately enhance profitability for American studios.

  2. Redirected President Trump's focus away from tariffs by validating his concerns about declining domestic production, while introducing a more strategic approach. It reframed the issue, encouraging consideration of alternative tax policies and targeted incentives to reshore production.

  3. Proposed a concrete, forward-looking action—to build momentum behind existing legislative efforts aimed at reshoring content production, creating U.S. jobs, and strengthening GDP.


President Trump backed off, expressing a willingness to work with the film industry and did not intend to harm it. While Hollywood may be breathing a sigh of relief, it is also undoubtedly intensifying its lobbying and policy efforts to secure the future of American film production in line with its needs and interests. Meanwhile, other companies may be left anxious about the possibility of more tariffs on digital goods.


2. Why Current Frameworks Don’t Support Tariffs on Digital Goods

Summary: Is digital content the next target? In short, probably not, thanks to deeply entrenched operational and systemic limitations within both U.S. and global regulatory frameworks. If any tax were viable besides tariffs, it would be a Digital Services Tax (DST). However, since the U.S. government has long opposed the DST, alternative U.S. tax incentives and strategies like the ones highlighted by Hollywood, rather than tariffs and DSTs should be explored to boost the American economy.

Tariff rates can only be determined based on at least these three core elements: 1) an item’s tariff code, 2) an item’s customs value, and 3) an item’s country of origin.


The procedures and regulations for determining these elements are designed specifically for tangible, physical goods. As a result, it may not be immediately feasible to impose tariffs on intangible goods given the current tariff system. The following questions highlight the specific reasons it may not be feasible:


  • How could the US impose a tariff code on digital goods and services when there are no tariff codes for intangible goods or services from which to assess a tariff on?


Since 1988, countries have used the harmonized tariff coding system. While tariffs may apply to the physical goods used in film production, they do not extend to the final digital content. So could the U.S. be the pioneer in changing that and make changes to include a tariff code for digital goods? Possibly. Chapter 99 of the U.S. tariff schedule is the chapter typically used to apply temporary or special tariffs. HTS chapter notes or General Notes of the tariff schedule could also be leveraged to do this. It would seem feasible to simply add a section of tariff codes for intangible goods to the existing schedule of tariff codes. But what about the other elements required for calculating and imposing tariffs?


  • How could a U.S. company determine the customs value of its digital content for tariff purposes using existing customs valuation methodologies?


Let’s say someone in Hungary wants to download the YouTube app. How much is that export worth and to apply an ad valorem tariff onto it? Should the content creator or platform apply an existing valuation methodology? Let’s try to apply the most commonly used valuation method in this scenario - the transaction method - which requires proof of sale, such as an invoice. Let’s say the proof of sale is the user’s monthly subscription fee. This grants access to all content on the platform, however, so this raises complications. If the user views multiple pieces of content, should the subscription fee be allocated proportionally across all consumed content?


Valuing individual pieces in this manner across millions of subscribers quickly becomes arbitrary and difficult to justify under current valuation standards. This could also necessitate companies having to voluntarily self-disclose subscriber numbers and data as a basis for assessing tariff responsibility thus risk more exposure to customs authorities outside of the standard ACE (Automated Commercial Environment) system. ACE is the software system used by the U.S. Customs for tracking tangible (not digital) imports of goods into the U.S.


  • How could a U.S. company determine the country of origin on foreign made films for tariff rate determination?


A U.S. company could import raw footage and develop it into a movie, which could potentially qualify as U.S. origin under the substantial transformation rule. But let’s say that raw footage and movie were both produced overseas, and the finished movie is imported into the U.S. Each time a U.S. company enables a user to click and view digital content, a tariff would theoretically need to be calculated based on the specific code, value, and origin of that content. This rate would then have to be assessed by U.S. Customs. However, once again, ACE does not currently track such transactions. So would U.S. companies be expected to build new system integrations with the U.S. government to enable this?


This brings us to one bonus question highlighting the lack of feasibility. Current systems are simply not set up for digital import tariffs.

 

  • How could the U.S. Customs ACE system and other regimes customs systems be configured to track virtual imports?

    • Would companies manually go into ACE every time or at the end of a sales period to submit digital exports or imports?

    • Would the U.S. update ACE so that any company’s sales platforms could integrate to do those submissions automatically?

    • How would U.S. Customs respond to this new system of needing to monitor and enforce submitting import/export entries into ACE?


It’s also important to note that there is already a tax on digital platforms called the Digital Goods and Services corporate income tax (DST). It is imposed mostly by European countries on large multinational enterprises. Though this tax might be easier to impose on a company than a tariff, the U.S. government has pushed back on this tax with retaliatory tariff threats and investigations.


The most recent international policy convention to establish standards on this matter culminated in an agreement to move toward a global implementation of tax reforms, including the removal of DSTs and the establishment of a fairer allocation of taxing rights.


Instead of leveraging taxes like DSTs, tariffs have become President Trump’s go-to tool for combating unfair trade policies that hurt American companies and achieving bilateral trade agreements with countries. From a trade operations perspective, however, it would be impossible to quantify, manage, and enforce tariffs on digital products because the existing tariff systems and rules only govern physical products.


The point is probably clear by now: operationally and systemically, neither the U.S. nor the rest of the world is equipped to impose tariffs on digital goods and services. While trade industry advocates and regulatory agencies who have been opposing tariffs on digital imports likely understand the mechanics of this, the value of walking through this exercise is to illustrate—especially for companies unfamiliar with the process—why applying traditional tariff mechanisms to digital services is fundamentally unfeasible.


3. The Precedent for Keeping Digital Trade Tariff-free 

Summary: From a policy standpoint, import tariffs on digital goods have faced long standing, broad opposition from numerous countries including the U.S. Given this existing precedent and all the practical challenges discussed above, preventing taxes and tariffs on digital content can be achieved by contributing to existing anti-tariff policy momentum.

While President Trump may now have the authority to shift U.S. policy away from multilateral trade agreements that oppose tariffs on digital goods, precedent suggests that imposing tariffs on intangible goods and services is restricted under global trade regimes. At the 13th WTO Ministerial Conference in 2024, WTO members approved extending the moratorium on customs duties for electronic transmissions. Organisation for Economic Co-operation and Development (OECD) have pursued efforts to phase out Digital Services Taxes (DSTs) through the BEPS framework. There is also a published decision from the WTO that a customs value should only include the value of the “carrier medium” itself (the physical object that stores the content or data like a SSD, hard drive, or CD) not the value of the data or instructions on that drive or carrier medium.


Building on this precedent, consider the five following actions to support tariff-free digital trade:


  1. Engage in Proactive Policy Advocacy. Check out these organizations that advocate for digital trade protections, the free flow of digital content, and oppose tariffs or trade barriers on digital goods and services. Companies who operate UGC platforms should also differentiate themselves from traditional media in policy discussions to avoid unintended regulatory or tariff exposure.



  1. Support Tax Relief Instead of Tariffs. Adopt the film industry’s response. If both tariffs and Digital Services Taxes (DSTs) are broadly opposed or operationally unworkable at the global level for media and digital content imports, then there is a strong precedent preventing import tariffs. Supporting the below tax measures can help reshore production and enhance American competitiveness, which are some of the core objectives behind the Trump Administration’s use of tariff threats in the first place. Advocating for tax incentives instead of tariffs may generally be more effective long term at boosting the creative economy in the US.


  • Tax incentives for digital innovation and creator economy infrastructure as a means to boost American competitiveness.


  • 15% corporate tax rate for domestic manufacturing to replace the 21% rate via the Domestic Production Activities Deduction in Section 199 of the IRS Code. This was said to be supported initially by President Trump during his 2024 reelection campaign.


  • Expensing for American Film and Television Production tax break in Section 181 of the IRS Code on production costs instead of delaying deductions until after a film is released.


  • Net Operating Loss (NOL) carryback which reinstates the ability to carry back losses to offset prior years’ profits which can offer greater financial stability for production companies with fluctuating income. This mirrors the tax systems in countries like the UK and Australia which have attracted significant production investment.


  1. Regionalize Operations Where Strategic. Consider localizing certain services such as content moderation, cloud infrastructure, or regional creator support in key markets to reduce the perception of “foreign” digital content imports. Support in-market creator ecosystems to demonstrate ability to localize economic participation, not just exporting U.S.-based services.


  1. Monitor Global Trade and Regulatory Risks. Track bilateral and multilateral trade negotiations where digital services are on the table (e.g., U.S.-EU Trade and Technology Council or U.S.-Asia digital trade initiatives). Evaluate exposure to DST-like measures that may evolve into tariff equivalents, especially in jurisdictions with large user bases (e.g., France, India, Brazil).


  1. Optimize Legal and IP Structuring. Structure licensing, IP ownership, and monetization frameworks to minimize the appearance of cross-border “imported” digital goods. Consider regional subsidiaries or licensing vehicles that localize rights distribution and reduce the risk of being caught in tariff categories.


Conclusion

Ideally, this memo provides reassurance to the digital content industry. This deeper understanding of existing systems and policies reveals that the U.S. is probably not capable of imposing tariffs on digital imports any time soon. Companies can rely on this foundation. The priority now is not to resist the U.S. government embarking on a system overhaul in order to impose tariffs. The priority is to bolster the strategic momentum already initiated by industry and advocacy groups and apply continued pressure to ensure digital goods and services remain tariff-free.



About the Author

Laura Kerksiek is an advisor at Tradewatch and has spent more than 15 years in trade compliance strategy and operations. Find her on LinkedIn


 
 

©2025 by TradeWatch, Inc., San Francisco CA

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