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What would Trump's trade war mean for the games business?

The high-profile summit on game violence is a paper tiger; the industry should take the opportunity to persuade the President on trade issues instead

As I write this, representatives of the games industry are getting ready to meet Donald Trump to discuss his contention that violent games are responsible for America's epidemic of school shootings. By the time you read it, the meeting will be over; from here, it looks like it'll be quite the circus, with reports suggesting that even good old Jack Thompson is being dug up from whatever hole disbarred lawyers generally crawl into for the occasion. Take note, game creators: bringing back the villains everyone thought they'd defeated at the end of the last game for the sequel is damned annoying.

Whatever discussions happen about violent games in this meeting are likely to be rather silly, and ultimately pretty pointless; the US Supreme Court, including its most conservative members, have made their position on games being protected speech very clear. Having to rake over the coals of this old fight once more is tiresome, but the chances of an outcome that actually limits or restricts the first amendment rights of game creators and publishers is essentially zero. That's why I'm hoping that, if there's a brief lull in the proceedings, someone from the video game side takes the opportunity to raise the issue that's actually pertinent to the future of this industry - namely Trump's recent threat to kick off a trade war by slapping unilateral tariffs on steel and aluminium.

"Whatever discussions happen about violent games in this meeting are likely to be rather silly, and ultimately pretty pointless"

On the face of it, that doesn't seem like it should concern the games business - after all, game creation doesn't consume a whole lot of steel or aluminium - and as such, I haven't heard much discussion of the topic within the industry. Yet the whole issue of free and open trade is absolutely essential to this business, and the liberal, rules-based order of international trade that the Trump Administration seems to find so aggravating and stifling is the very lifeblood of how games companies do business.

The danger is not from steel and aluminium tariffs; the danger is that these tariffs are the first shot in a trade conflict which will force countries and trading blocs around the world into a cycle of retaliation. It's worth unpacking the nature of that threat and what it actually means to game companies; trade regulations and tariffs aren't the most exciting topic of discussion, but the sheer number of industry jobs that might be threatened by a tit-for-tat escalation of tariffs should give us all pause.

The basics are simple; Trump and many of his advisors (who take a jaundiced view of free trade in general and the World Trade Organisation in particular, seemingly believing it to be a 'bad deal' for the USA) believe that China is flooding world markets with cheap, subsidised steel, thus pushing steel industries elsewhere to the brink of unsustainability. In this much, at least, they're not wrong; China followed a late-Victorian playbook of great power development and created a gigantic steel industry whose output it simply doesn't know what to do with, hence dumping it on the world markets.

It's a problem. Like Elmer Fudd taking a blunderbuss to his living room in an attempt to eradicate a mouse, however, the Trump Administration is now aiming to enact harsh tariffs on all steel and aluminium entering the United States, a move that will actually impact US allies like Canada, South Korea, Japan and the EU far more than China.

"Imposing new tariffs on the ability of software and digital services companies to operate across borders could be absolutely devastating"

In the event that this happens - and it's not a done deal, with talk now in Washington of excluding certain US allies from those tariffs, for example - several of the states or trading blocs impacted have made it clear that they won't take it lying down. The EU has started muttering darkly about making a list of US products it would subject to retaliatory tariffs. Japan - desperately trying to hold together the liberal trade order in Asia in the face of advancing Chinese influence and now backstabbing from its most important ally - is unlikely to respond in that manner, but it's also committed to the TPP-11, a cross-Pacific trading group that will need to decide on a response to the US' tariffs. As for China, the country's response to unilateral US action hasn't been signalled yet, but for a nation far less committed to liberal trade ideals from the outset the options on the table may be far more drastic than those available to the EU or Japan.

Why should this worry the games business? Well, this would be the first time that a major trade conflict had broken out between world powers since the establishment of digital forms of business, and parties on all sides will no doubt be looking closely at regulations on those businesses and wondering how they might be employed to inflict economic pain on their rivals. In particular, any nation on the receiving end of the Trump Administration's tariffs will be keenly aware of the extent to which Silicon Valley and the tech sector in general has been the powerhouse of the US economy in recent decades, and just how heavily the US stock market rests on the shoulders of software giants.

Imposing new regulations and tariffs on the ability of software and digital services companies to operate across borders could be absolutely devastating. Not only are these companies whose whole business model was conceived and nurtured in an environment of international liberal trade, they are also companies whose business is often poorly-understood by lawmakers, who may do far more damage than they realise in going after "low hanging fruit" in the US' export economy.

"Trump's threat to crack down on violent games is a paper tiger... His threat to start a trade war, however, is far more real"

Games companies wouldn't necessarily be a target of that kind of action, but getting caught in the crossfire is a very real possibility. The sheer amount of cross-border trade a games company does is dramatic; it's not just about making a game in San Francisco, Los Angeles, London, Tokyo or Toronto and then selling it to customers around the world. Technology, code, assets and licenses move across borders many times in the course of a game's development. Key elements of a major game can be developed in half a dozen or even a dozen countries thanks to a variety of outsourcing and sub-contracting arrangements. Restrictions designed to squeeze Silicon Valley could end up severely damaging this system, costing jobs around the world and driving up development costs on games that often already sit on a knife-edge of profitability.

That's even before we start to think about what happens in markets like China - into which many major games companies are extended, and whose own companies like Tencent are an increasingly important presence on the global stage - or important developing markets like India and Brazil. The entire strategy of games companies methodically building their businesses up in these markets has relied upon the rules-based trade regime; if the US signals a move away from that and emerging markets follow suit, the ensuing free-for-all will be disastrous for IP holders and will cause unbearable risks for anyone who's launched into a partnership or joint venture in a major new territory. Trade rules are boring largely because they actually work; when they don't, the "might makes right" system that replaces them is a chaotic free-for-all in which opportunist land-grabs can cause enormous problems for even the biggest of companies, let alone small- to medium-sized firms.

It may not be this bad in the end. There's little question that some figures around President Trump want to see him tear up the current world trading rules and go back to the kind of unequal treaties and US-favouring deals that defined much world trade in the era before the World Wars. But there's also hope that cooler heads will prevail and water down these drastic proposals to truly homeopathic levels.

The hope that the worst might be avoided is exactly why the games industry's representatives should be taking advantage of their face-time with the president this week. His threat to crack down on violent games is a paper tiger; there are too many hurdles too jump, too many checks and balances in the way, and bluntly, the President doesn't have the patience to see through that kind of drastic project in the face of such enormous resistance.

His threat to start a trade war, however, is far more real. Such actions can be taken by a president without needing congressional approval, and could be even more damaging to the industry's future. The game violence argument clawing and moaning its way from the grave is a better lead story, but, with apologies for any unpleasant flashbacks to the Star Wars prequels, now would be a really good time to start finding trade rules suddenly interesting.

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Latest comments (4)

Chris Payne Managing Director & Founder, Quantum Soup Studios7 months ago
Thanks Rob - great summary of why we should be paying attention. A lot of people see politics as nothing but flamewar fuel. That's precisely *because* it's so important.
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Ian Baverstock Co-founder, Tenshi Ventures7 months ago
"Imposing new regulations and tariffs on the ability of software and digital services companies to operate across borders could be absolutely devastating."

Perhaps Rob would like to discuss the current situation with China and international trade barriers for software and digital services companies? The entire Chinese internet industry operates behind fierce barriers to foreign companies' operations and ownership in China. There, there are competitors to Google, Ebay, Twitter, Facebook, etc. unlike anywhere else. Is this good for China? Is this good for the rest of us as we can't sell in China effectively? It obviously isn't good for the US but they seem to have tolerated blatant protectionism (and wholesale IP theft) by China for a long time.

Perhaps a more nuanced view of which countries deserve criticism for their trade policies is in order on a site like GamesIndustry.biz? In the meantime, we can just shout "Trump bad" a lot and watch China's companies grow without fear of Western competition in their domestic internet market.
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Keldon Alleyne Strategic keyboard basher, Avasopht Ltd7 months ago
In the meantime, we can just shout "Trump bad" a lot and watch China's
I've not seen anything like that here.

What I have seen is well deserved criticism of The President of the United States. He deservedly is being held to a high standard - as he should be.

Edited 1 times. Last edit by Keldon Alleyne on 10th March 2018 10:31pm

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Christopher Dring Publisher, GamesIndustry.biz7 months ago
@Ian Baverstock: What’s the new story there Ian? What particular development in China have we missed that needs an additional piece of analysis, opinion or discussion? I don’t disagree with anything you’re saying, but everything you mentioned is a known quantity that has been a topic on this website on numerous occasions. And will likely be again before long.

The latest rhetoric coming out of the US is a new conversation that we/Rob feel we shouldn’t ignore.
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