The tariffs being imposed by Donald Trump will have a range of consequences. One beneficiary will be Canada.

How can this be? Trump is imposing tariffs on that country to cut the trade deficit. Why do I think this is going to help them?

As always, economics is not as straight forward as people make it out to be. There are many nuances. It requires stepping back, putting down the textbook, and look at the full impact of decisions.

Over the last couple years I wrote about how Hollywood was in a lot of trouble. This was basically due to a technology shift, one that is happening in a couple waves. The first broke up the monopoly on distribution, with YouTube becoming the top streaming entity.

Then we have AI. This is going disrupt the production of content.

In the meantime, we have disruption that can be called geographic.

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Trump Tariffs Hurting Hollywood And Helping Canada

Hollywood was in trouble long before Trump took office (this time). The wildfires did not help an already struggling area. Nevertheless, the Trump tariffs are going to be a crushing blow to Hollywood.

There was already competition from other geographic areas. States such as Nevada, Georgia, and Arizona rolled out the carpet to attract the movie studios. They offer generous tax incentives along with offering a much lower cost of production.

The same is true for Canada.

Over the last decade, the film industry have grown in that country. At present, there is the infrastructure in place to add to the load. This makes it a viable competitor to Hollywood.

So how is Trump inadvertantly helping out Canada while crushing Los Angeles? How can tariffs imposed on another country help it?

The answer comes down to the currency. We see the Canadian dollar in a free fall against the USD. It is at levels not seen in 22 years.

A trade war does not bode well for the currency. The CAD will get hit worse than the USD. This means the USD will go a lot further in Canada.

The net result is that filming, already less expensive than Southern California, just got cheaper. Companies were already incentivized to leave Hollywood, this will only add to it.

Of course, this is the opposite of what Trump intends. It is also why tariffs are a tricky situation, one without a clear outcome.

The President's advisors would be wise to mention that the economy is vastly different than the lates 1800s, when tariffs were "king". We are no longer a merchantile economy, exporting significant quantities of goods to other countries.

Backwards Economics

It is prudent to realize much of what we were taught about economics is backwards. A lot of the theories espoused by the profession date back to pre-World War 2. Complexities arise when dealing with FOREX, technology, and geopolitics with near instant communication.

Ultimately, Hollywood is cooked because of technology. The tariff situation will backfire as the United States has the largest economy. When comparing $28 trillion to $2 trillion, it makes sense the larger will import more. It has both a larger and wealthier population.

Currency can often lead to deflationary situations. While something looks inflationary on paper, the reality can be the opposite. FOREX often drives this, as done affordability. Few ever consider the long held statement of "the solution to higher prices is higher prices". What do you think will happen with $25 per gallon oil? Or milk?

Ultimately, economies enter recession. In this article, we are looking at an industry (area) that was suffering. Why is there a push away from Hollywood? There answer is likely varied but a great deal of it is due to cost. It is too expensive to produce in Los Angeles.

The solution to higher prices is higher prices.

Eventually, people and companies seek alternatives. In this instance, we are focusing upon Canada. Obviously, the states listed above also will likely benefit. However, those still us the USD. With Canada, tariffs are nothing compared to the currency benefits gained by the US. It also, ironically, makes imports by Canada even more expensive.

The reverse is also true. Under this scenario, the USD purchases a lot more when prices in Canadian dollars. That is what the film industry is looking at. If there is a $25 million budget, that money goes a lot further in Canada, especially with the exchange rate.

Posted Using INLEO