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I dislike hyperbole in headlines. I think it’s kind of lazy and borderline unethical at times. Just say what the article is going to be about, no false promises needed.
So if I write that “The Trade Wars Could Decimate America’s Creator Economy” know this: I mean it. The trade wars really could wreck America’s creator economy. At the very least, many Substackers, content creators, and their employees could lose income or their jobs. And in true EntStrategyGuy fashion, I have possible good news at the end of the article. The world is nuanced.
To summarize yesterday’s article, in case you didn’t read it:
- Trump announced tariffs, starting a global trade war.
- Almost everyone is focused on durable goods, not services.
- But America is rich because of “services”, including IP rights and digital goods, especially Hollywood and Big Tech.
- Thus, if other countries really wanted to hit the US, they’d tariff American services.
- And many of these attacks wouldn’t be nearly as unprecedented as most people make them out to be.
Yesterday, I wrote about the possible impact on Hollywood. Today, I’m looking at the digital side of the ledger i.e. big tech and content creators.
Let’s start with Substack.
“Services” Are Products
Many “services” are products, just like socks or bananas, even if they’re digital. They require work, time and manpower to create them.
Let’s provide an example. Say you’re a former music executive who specialized in data analysis. You used to work at a major record label, but you left to start your own newsletter. You became a data journalist. Now you cover streaming music ratings. Each week, you write a “Music Streaming Ratings Report” that analyzes streaming listenership.
Remove “music” from the above paragraph and…you have yours truly.
Do I make a product? Yes. Is it a “durable good”? No. Can you hold it in your hands? Not unless you print it out. But for everyone saying that “America doesn’t make things anymore” that totally discounts what I do. Maybe I’m not in a factory pounding out a piece of metal, but I put in a lot of work to…
…collect data.
…collate that data.
…analyze said data.
…write it up in a digestible, cohesive story.
…edit it.
…post it.
…publicize it.
Yeah, I’m not mining takes out of a takes mine or assembling takes at my take factory, but I’m putting in work and adding value to the economy.
And crucially digital technology allows me to export this product globally.
Could the Trade War Come for Substackers?
As I wrote yesterday, almost everyone is fighting the current trade war in the physical world, not the digital one. The question is, what happens if/when this mindset changes?
In particular, what if Europe institutes a foreign digital goods tariff?
In other words, what if they tax Substack subscriptions?
Bigger question, why wouldn’t they?
As I wrote about Netflix and other global streaming platforms yesterday, this type of tariff is actually easier to implement than physical goods, which require in-person inspectors to review the goods and paperwork based on the country of origin.
In this case, if the EU—purely hypothetically—passed a 20% digital tax/tariff on all foreign creators, Substackers, podcasters and YouTube creators and other companies would face a choice. They could either raise prices—which would hurt sales—or absorb the costs, which would lower their take home revenue from any European customers.
I doubt that content creator tariffs would “kill” Substack or even hurt the platform all that much. But it certainly could take a bite out of foreign readership and hurt the newsletter business overall. It could absolutely hamper the expansion of mega-newsletters like The Free Press, The Dispatch, The Bulwark and The Ankler, who almost certainly take advantage of foreign readership in a way that, pre-21st century, few US-based media outlets could leverage. Not many magazines and newspapers were mailed overseas.
Honestly, newsletters are small potatoes in the creator economy. YouTubers and influencers on major social platforms make much more money, and if the trade wars “go digital”, I’d worry the entire ecosystem could suffer. Again, one can easily imagine a digital tax on advertising and subscription revenue before it returns to America—or any Irish tax havens—that would hurt both YouTube and creators.
How bad could it get? It depends if the current creator economy boom is a boom…or possibly a little bubbly. Just ask Mr. Beast (looking for investors at a huge evaluation) or Dude Perfect (just built a new studio after huge investments) if they can afford to lose their foreign revenue right now. And countless smaller influencers live on the knife’s edge of being able to make a living; any loss of revenue will force them out of the industry.
As for me personally, I’m not actually sure what percentage of my subscribers are foreign. Regardless, some percentage of my audience uses foreign currencies to buy my product. Say foreign governments slap a 40% tax on Substack subscriptions, and I lose 10% of my readers. Now my income has gone down 10%. And that’s how tariffs cause recessions.
Luckily, for now, very few people are viewing the trade war through that digital goods lens to which I say, “Thank God they’re not!”
What if the Trade Wars Come for Big Tech?
Yesterday, I focused on the trade war’s impact on Hollywood media companies, but I’d be far more worried if I were one of the traditional big tech companies, like Apple, Amazon, Google or Facebook. (But as I wrote yesterday, Netflix should be worried, too. And Tesla for obvious reasons.)
The tech behemoths are particularly exposed to an extended, vicious, prolonged trade war, especially if the Trump administration remains angry at Europe.
Target #1: Capping App Store Fees and Other Pro-consumer Measures
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