Netflix’s (NASDAQ:NFLX) longest winning streak in its history came to an end this week after President Donald Trump announced plans to impose a 100% tariff on foreign-made films. The stock fell by 1.9% and dropped as much as 4.3% earlier on Monday.
The president directed the Department of Commerce and the United States Trade Representative to "immediately begin the process of instituting a 100% Tariff on any and all Movies coming into our Country that are produced in Foreign Lands.”
Other media stocks also fell after this tariff announcement, but NFLX stock is likely what first comes to a person’s mind if they think about a company that will see the biggest impact from these tariffs.
Trump claimed the U.S. film industry "is dying a very fast death" due to foreign nations enticing filmmakers and studios with various incentives. He framed the issue as "a concerted effort by other Nations" and even labeled it a "National Security threat".
By Monday afternoon, the White House clarified that "no final decisions on foreign film tariffs have been made" and the administration was "exploring all options". Trump later stated from the Oval Office that he plans to meet with industry leaders to ensure they are "happy" with his tariff initiative, and he said, "I'm not looking to hurt the industry; I'm looking to help".
The announcement left Hollywood executives scrambling to understand how such a tariff would actually work. Studios regularly shoot films across multiple countries, with writing, acting, editing, post-production, and visual effects often done in different locations.
"Nobody knows, and I don't suspect we will for awhile," one high-level film industry executive told the Los Angeles Times. "Is it on domestically funded foreign productions? Is it on foreign funded ones? Is the tariff on film revenues or film costs on those projects, or both?"
Wall Street analysts expressed significant doubt about the feasibility and wisdom of the proposal. TD Cowen analyst Doug Creutz called it "a very low-probability outcome" and noted the potential drawbacks "greatly outweigh any potential benefits".
Morgan Stanley analysts described the idea as "ill-defined" and warned that 100% duties would likely result in fewer films. And obviously, higher production costs and reduced earnings. In turn, this will translate into higher ticket prices at the theater. Netflix has already increased its subscription prices recently, so another increase anytime soon wouldn’t be a smart idea from its management.
Fox Business ran a headline in mid-April titled “How Netflix has been able to skirt effects of Trump’s tariffs,” in which Co-CEO Greg Peters said, "Netflix specifically also has been generally quite resilient, and we haven't seen any major impacts during those tougher times, albeit, of course, over a much shorter history."
With hindsight, though, it’s easy to judge, but many analysts also thought NFLX stock wouldn’t take any tariff-related hits. No one expected tariffs on movies, and they’d be lying if they said otherwise. I myself believed Netflix to be tariff-proof.
Regardless, the vague nature of this proposed tariff is unlikely to make it practical. Unlike physical goods that enter through ports, digital content doesn't cross borders in traditional ways. Implementing a 100% tariff on something as complex as international film production seems administratively nightmarish.
What remains to be seen is whether this proposal advances beyond the announcement stage or fades away like some of Trump's previous tariff threats. I think the latter is more likely, so NFLX is still not a sell for me.
