Apollo Magazine (UK)
Melanie Gerlis on the effect of US tariffs on the market for Chinese art
Tariffs on Chinese art and antiques entering the US may have been cut this year, but they remain at such a level as to injure the market for Asian art in the long term – a sector that could well do without the extra red tape, given the unforeseen challenges it is currently facing
The preliminary trade agreement reached between the US and China in January may have softened some of the blows originally imposed by the Trump administration. But it did not abolish the still-punishing tariffs on Chinese imports – with the art market among the losers. At the time of writing in early February, with China emerging from its New Year break, approximately $120bn of its goods stand to face a 7.5 per cent tariff in the US, a reduction from 15 per cent. The items include paintings, drawings and sculpture as well as silverware and furniture more than 100 years old.
Both Christie’s and Sotheby’s have applied to the Office of the United States Trade Representative (USTR) for exemptions on seven categories of art and antiques. The auction houses are now in the second ‘substantive review’ phase of a four-part approval process. Other businesses that have sought exemptions include Apple (for 11 categories ranging from AirPods to the iMac) and the manufacturer Polaris, whose tariff-hit categories include protective helmets and goggles.
Christie’s position on the impact of the tariffs is crystal clear. A spokesperson says that should they continue, ‘Christie’s expects a portion of consignments may necessarily shift to other sale regions globally,’ adding that they ‘may have a long-term impact on collectors, cultural institutions and the art trade generally’. Sotheby’s has made similar noises about the ‘material disincentive’ to trade. Supporters of its submissions include Katherine Martin, director of Scholten Japanese Art in New York, who writes on the USTR site: ‘As a gallery selling Japanese art in New York, you would think these issues would not concern me, however, a weakening of any aspect of my field has a ripple effect on all of us.’
Public sale results seem to back their points. Christie’s September sale of Chinese ceramics and works of art in New York turned over $17.5m in 2017, before any talk of tariffs on Chinese imports. One year later, when there was speculation that art was threatened, the equivalent sale made $15.5m. Come 2019, with the sales happening just after the 15 per cent tariff was applied, the same sale achieved a total of $11.6m (all totals include fees). The direction of travel seems be going one way.
The exact effect may prove difficult to quantify, but red tape is never helpful to any market and the relatively free trade in art in the United States is one reason why the country remains the strongest market in the world. Ben Clark, deputy chief executive at the art advisory firm Gurr Johns International and previously deputy chairman at Christie’s in Asia, compares the current situation to the market for Italian art, which is hampered by strict export regulations. ‘If you can’t trade goods in a productive way, it will simply shrink the market,’ Clark says. The political mood swings and lack of clarity don’t help, he adds: ‘I wouldn’t advise anyone to buy in an area that may not be tradable in five years’ time.’
China’s collectors are by far the biggest buyers of their own art and antiquities, and pretty much rescued the upper echelons of the wider art market after the Western economic crash that began in 2008. But China has never been straightforward. It has been difficult to get money out of the country since the government tightened rules that curb overseas spending and speculation in 2016. Non-payment and late payment continue to dog auction sales. A survey of 358 auction houses by the China Association of Auctioneers found that of all the lots sold in mainland China in 2017, only 49 per cent were fully paid for by May 2018. Anecdotal evidence suggests this is also a problem for overseas galleries doing business with collectors from the mainland, finds the 2019 Art Basel and UBS Global Art Market Report.
And it’s not as if there aren’t other problems just now. In 2019, China’s economy grew by 6.1 per cent, the lowest rate since 1990, exacerbated by the trade tit-for-tats with the US, an ageing population and a high total debt to service. Meanwhile, the Hong Kong Special Administrative Region – Asia’s art market centre – has been rattled by months of protests against the Chinese government. These, according to the latest report from the credit rating agency Fitch, ‘are testing the perimeters and pliability of the “one country, two systems” framework that governs Hong Kong’s relationship with the mainland’. Auctions in town have been relatively unscathed but galleries on the ground are suffering, together with the territory’s wider economy. All this before the SARS-like coronavirus hit Wuhan, a city midway between Beijing and Hong Kong. The virus has been classified as a global emergency by the World Health Organisation, and at the time of writing had already affected 28,000 people and caused 565 deaths. Beyond the human tragedy, the lockdown in China has serious implications for the country’s finances – and by extension, international ramifications. As this article went to press, Art Basel announced the cancellation of its fair in Hong Kong, which had been due to open in mid March; the organisers cited ‘health and safety’ concerns, ‘severe logistical challenges’ and ‘the escalating difficulties complicating international travel’, all stemming from the coronavirus outbreak, as the factors that had prompted their decision.
As the world’s second largest economy enters the Year of the Rat, tariffs on Chinese imports to America could prove the least of the art market’s problems. Ⓐ