Over 80% of movies from major American studios are filmed outside of the United States. Economic incentives like tax credits, labor cost savings, and global shifts in box office revenue have all contributed to this trend. But with President Trump’s recent order for 100% tariffs on foreign films, the industry faces a seismic shift that could reshape how movies are made and distributed.  

Understanding the Foreign Film Tariff’s Impact

A tariff is essentially a tax imposed on imported goods. In this context, the film is an imported good. While Hollywood awaits specifics around the tariff’s implementation, it’s clear that productions will have to rethink their budgets and processes to account for the added expense.

Like many industries, film production benefits from a global supply chain where different services, like filming and editing, may happen in different locations that allow for cost and labor efficiencies. To oversimplify, a 100% tariff could mean that the cost of bringing a foreign-made film to U.S. audiences would double. For example, if Disney produces the next Marvel blockbuster in the United Kingdom for $200 million USD, the tariff would add another $200 million in costs to bring that film to the U.S. market. 

U.S. production companies like Netflix and Disney have already seen their shares decline in anticipation of these increased production costs, signaling that investors recognize the challenge ahead. Hollywood’s global production model, built over decades to improve efficiency and minimize costs, now faces significant disruption. 

Why are Modern Productions so Expensive? 

Today a blockbuster budget can reach up to $300 million USD. Several factors drive these high costs, ranging from talent salaries to technology and marketing. All of these become more complex under the tariffs. 

Talent Fees: Today’s talent market operates on a project-by-project basis, driving up costs as stars and directors command premium rates for each film. 

Special Effects: The demand for sophisticated special effects technology like VFX and CGI means that big productions often require teams of skilled visual effect artists, high-powered computers, and specialized software. Productions often outsource these talents to markets where the cost of talent fees and royalties is lower. 

Distribution and Marketing: Big productions spend an average of $35 million USD on distribution and marketing. At the same time, 70% of major studios’ annual box office revenue now comes from international markets, making foreign audiences crucial to a film’s success. 

With a 100% tariff in place, productions filmed abroad would need to factor these costs into their budgets, making A-list talent, international VFX houses, and global distribution strategies potentially cost-prohibitive.

What is Driving Production to Foreign Locations?

Most films are financed using a waterfall structure, which outlines how revenue is distributed among investors, producers, and other stakeholders. This framework is set before production, and prioritizes high-risk lenders first, often secured by collateral such as tax incentives. 

Location-based tax incentives are a key reason productions have gravitated toward foreign locations. Several countries offer attractive tax incentives that significantly reduce the cost of making a film. While more than half of U.S. states offer production incentives, they are often less competitive or flexible than overseas alternatives.

There are three primary types of incentives: tax rebates, tax credits, and cash rebates. Tax rebates refund a qualifying percentage of expenses back to the production after filming. Tax credits reduce the overall cost of filming by offsetting tax liabilities, and cash rebates provide direct payments to productions. Grants, sales tax exemptions, lodging exemptions, and fee-free locations are other common means of lowering production costs for films.

The most popular filming destinations right now include Canada (35% tax credit), the UK (25% tax rebate), and Jordan (45% cash rebate). Some European countries and Australia even allow productions to stack national and regional incentives, further increasing potential savings. With the tariffs, these savings may become negligible. 

Navigating the New Tariff Landscape

With tariffs in effect, the industry expects to face increased production costs, ticket prices, and streaming fees. Independent filmmakers, who often rely on international festivals and distribution networks, will struggle to absorb these added costs within already tight budgets. Other countries may retaliate with their own tariffs or restrictions on American films, further complicating the global distribution landscape. 

Hollywood must now determine how to secure global box office results without relying on international tax incentives that may no longer justify their costs after tariff calculations. The financing structures that have supported the industry, particularly the use of foreign tax incentives as collateral, will require restructuring as these incentives lose their effectiveness in the U.S. market.  

The key to successfully navigating these tariffs will involve: 

• Adapting film financing models to account for the reduced value of foreign tax incentives as collateral. While financiers and studios develop new security structures and risk assessment models, there’s an opportunity for states and federal programs to restructure domestic tax incentives that compete with international offers. 

• Partnering with expert financiers who understand the changing landscape and can help studios restructure their funding models to account for increased costs while maintaining financial security in an environment where traditional collateral structures are no longer as relevant. 

• Strategic timing and planning to complete international productions before full tariff implementation, while simultaneously developing domestic alternatives for future projects. This transition period will be crucial for studios to adapt their production pipelines.

• Leveraging existing revenue diversification. Major studios have already extensively diversified beyond traditional theatrical releases through streaming partnerships, merchandise, and licensing deals. The focus now shifts to optimizing these existing revenue streams to offset tariff-related cost increases.

The film industry has weathered significant disruptions before, from the streaming revolution to the impact of the pandemic. While these tariffs present serious challenges, they may also create opportunities for domestic production to expand and innovate. Success will depend on how quickly and creatively Hollywood can adapt to this new economic reality while continuing to produce the compelling stories that global audiences demand.   

 

For more information about financing the stages of film production, view or download our white paper – Film Finance Demystified.

Or visit the LX Film Credit Fund overview.