Tariff Wars and the Entertainment Industry

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Tariff Wars and the Entertainment Industry

By | 2018-06-29T09:13:50+00:00 June 29th, 2018|Anime, Manga|

With so much talk in the international news about trade wars and unexpected tariffs, there is an understandably high level of uncertainty in the global trading market these days. Revolving around the US president’s instigation against China, the entire world has braced for anything and everything possible in terms of drastic economic fluctuations.

Recently, in an unfortunate attempt to make more jobs in the US, President Donald Trump raised import taxes on Chinese Steel and aluminum to %25 and %10 respectively. This came out of nowhere and with no provocation and was followed with harsh rhetoric about the possibility of a trade war from the US president. In response, Chinese president Xi Jinping raised tariffs on a slew of American goods from motorcycles to solar panels and a whole range of goods, but at the same time, he has tried to at least keep diplomatic relationships amicable.

If this trade war ramps up in the way it has been going, it might split the globe down its economic center. Countries are already having to decide who to side with and against in this financial fight, and Japan being smack in the middle of the US and China (both geographically and financially) would have to decide who to side with. Whichever side the Japanese government decided to go with, the anime/manga industry would be hit with tariffs on the export of content to either country, two of the top four largest importers of media from Japan.

Even the entertainment industry is subject to these shifts. Often, we do not think about entertainment in this way, for its purpose is to escape the social, political, and economical change happening on a daily basis. However, it is a fact of life now that on a whim, the most powerful trade broker in the world will change prices, so let’s see how this could play out.

As of 2017 in the United States agricultural products face an average 12.9% import tax into Japan, while non-agricultural products receive an average 2.5% import tax rate, with an especially striking 9% import tax on clothing. In the same year, The United States’ average import tax was hovering around 3.5%. In the grand scheme of things, that’s a fair amount rate.

Japan bought about $800 billion USD in imports that year ($741.6 million of which were non-agricultural), and it made about $128.8 billion in import tariffs from the US in 2017, making it Japan’s second largest trading partner for non-agricultural goods (and third largest in agriculture).

Clothing import tax in the same year for the US averaged at about 11.6% and a 1.7% tax on electronical equipment. Japan is the fourth largest receiver of American imports, buying $54.7 billion USD of American non-agricultural goods.

Clothing, entertainment and memorabilia are the staples of the entertainment industry’s trade between Japan and the rest of the market. These are the backbones upon which distributors rely. Without a stable market, how can properties be traded successfully at all? Let’s take one company and run it through a hypothetical string of circumstances.

If we look at a company such as Sony, in 2017 for example, they made $1.58 billion USD in gaming and networking, $1.65 billion in music, and around $1.5 billion in film making, just to name a few of the most prominently profitable areas. Those three areas totaling $4.23 billion USD.

In 2017, Sony reported a foreign tax expenditure of $505.2 million USD. In that same year, the company reported a total gross of $76.3 billion dollars, making the real percentage of their import tax being closer to .6% total.

Sony Expenditures

Even though that is a relatively small number, imagine if that rate were doubled to say 1.2%. That would mean that Sony would begin to pay over a billion US dollars in import taxes alone. An increase of that amount would surely lead to some major shifts in international market strategies. And if things keep going the way they are, this is probably the most conservative estimate on potential tax hikes.

With the graph illustrated above, it is clear that although the import tax expenditure of a company such as Sony is seemingly insignificant. However, if there is any significant increase in unnecessary spending, a company faced with higher taxes is bound to cut unnecessary spending, usually coming in the form of mass layoffs.

The thing that is most frightening about the idea of a trade war is that there is no possible way to know what the future might hold. In the terms of a trade war, in which anything could happen at any time, this is absolutely the most conservative theoretical estimate on that line of increasing competition.

The US used to be the number one importer of anime content and merchandise, but recently dropped to number four in 2015, lagging behind China, Taiwan, and South Korea. And even though North America only makes up a total of 6.8% of overseas revenue, the US still importing 228 billion yen worth of anime, any sudden change in market standards could potentially throw a wrench in the gears of the whole thing. If China gets caught up in the trade war (though unlikely), that could spell disaster for the all of the anime industry’s export market since the Chinese market makes up close to one third of the total exports.

Any amount of increase in taxes levied against entertainment would cost the industry billions in tax revenue. This would be another, huge shift in the paradigm of easy access to international content. Right now, everything is experiencing a huge growth in available audiences because it is so easy to reach so large of audiences.

GUY!

It is somewhat sad that this should even be a pressing concern. Import tariffs should not have to be a topic of imminent news. It should be such an unremarkable thing that is not even worthy of consideration. But this is really the crazy thing that even this, such a commonly slight situation has to be a big deal now.

Even if all of this stays only theoretical and (hopefully) not actual, it is the mere fact that there is uncertainty that makes for a bad place economically speaking. Investments drop when the future is uneasy and unpredictable. That is a plain fact.

One of the reasons that the anime market was able to boom so much in the turn of the century to the present has been the encouragingly lackluster cost and effort to expand reach and easily export material. But in a world where all the avenues of expansion that we have taken for granted are suddenly cut off by the whim of someone unacquainted with the industry at large, ventures are taken quite tentatively and concerns are grown slowly and conservatively.

If I am allowed to speak candidly for a second, it is absolutely simply reporting on how certain industries will potentially experience unfortunate times. It gives me no good feeling to simply talk about how uncertain and unforgiving the future market might hold. I simply wish to write this as a warning and hopefully an option, leading to a deterrent. Once again, pardon the first-person interjection, but if felt necessary.

Overall, we have seen how current import taxes for intellectual property have arisen and stuck to a decently low number for a predictable and stable amount of time. The fact that these stable numbers are changing, or could change, so drastically is the frightening factor. These are the numbers that companies base their potential investments on, these are the numbers that make companies viable in the international scheme. If none of these are trustworthy, how is anyone to predict the up and coming trends? We must simply wait and see where everything levels out in the end of it all.

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