Tipping the Scale

Throughout 2019, The Point explores new models for operating in the art market. For this issue, we asked lawyer Michael McCullough of Pearlstein McCullough & Lederman LLP to elucidate what the United States tariffs on Chinese goods will mean for art businesses. 

It was only a matter of time before Chinese art and antiques became subject to import duties in the United States. As of 2018, the stated policy of Donald J. Trump’s administration has been to impose tariffs on 96.8 percent of all Chinese-origin goods entering the US, a list that excludes only items vital to US national security. The question for the art market, then, was when and how much. The answer came in August from the US Trade Representative: September 1, and 15 percent. 

The logic behind the administration’s tariff policy is simple: making Chinese merchandise more expensive in the US motivates manufacturers to produce more goods in the US. Alternatively, the taxes encourage US manufacturers in China to move production to other countries, if not stateside. These levies are a fundamental part of the administration’s “America First” policy. 

The US government’s reasoning has left gallerists and art collectors scratching their heads. Would a US collector forego the purchase of a Chinese contemporary painting from a gallery in Beijing in favor of a painting done in the US? Not likely. Fine art, unlike MRI machines and airplane parts, is a form of human expression, and individuals from different cultures have unique ways of expressing ideas. Art is not fungible across geographical regions. 

The tariff on Chinese art comes at a time of imbalance in the international art trade and will only serve to deepen these disparities. Twenty years ago, there was an active import trade of contemporary Chinese works in New York. That trade has almost completely moved to China. The tariff makes business that much harder—if not impossible—for the remaining handful of US-based galleries dedicated to contemporary Chinese art, who now must shoulder an added cost. Likewise, the auction market for contemporary Chinese art is already insignificant in the US, as the buyers of important pieces are predominantly based in mainland China. True, the tariff does not affect goods that are already in the US, but the policy does further demotivate international collectors from reselling their property with auctioneers in the US. For example, a Swiss owner of a Zeng Fanzhi canvas that has been kept in a Lucerne warehouse would lose 15 percent of the painting’s value if it were consigned to a New York auctioneer, as the policy doesn’t discriminate from where the object is imported. Oddly, the tariff helps Chinese consumers, who have an edge over American buyers looking to snag the best offerings on the international market, and it hurts the American seller in favor of vendors elsewhere—an unintended but real consequence that was overlooked by Washington. 

However, the imposition of the tax has broader, cultural effects as well. Museums in the US concerned with integrating Chinese works into their collections now face potentially prohibitive costs. In the long run, this means the representation of Chinese art history in the US will depend on donations and the availability of loans, as opposed to acquisitions. A California museum that seeks to commission Berlin-based Ai Weiwei to make a new edition of his Sunflower Seed (2008) installation, for instance, will have to consider if it is worth having the life-sized porcelain seeds made in the historic Jingdezhen workshop in Jiangxi province—an essential aspect of the work’s concept. Fortunately, certain imports are unaffected by the levy—less by design than by circumstance. Objects on temporary importation—referred to in the US as “TIB”—are classified under special tariff provisions that are not subject to additional duties. So, works for museum exhibitions will continue to enter the US tax free. 

The temporary import provision does not allow goods to be sold while in TIB status, but objects could be imported temporarily into the US for “inspection” and subsequently exported and sold to foreign buyers, or American citizens with other homes in other countries. Where the temporary import process in the US is restrictive and cumbersome, foreign-trade zones—areas in US ports of entry, designated by the government—offer a superior alternative. Chinese art and antiques could be imported into a foreign-trade zone, sold to an international buyer, and exported without imposition of the tariff. For example, art-storage company ARCIS built a state-of-the-art facility in upper Manhattan that qualifies as a foreign-trade zone. It could easily facilitate the importation of Chinese art and antiques for sale to foreign buyers while avoiding the tariff. 

Designed to be intrusive, the tariffs will undoubtedly change the purchasing habits of American collectors, the operations of contemporary Chinese art businesses in the US, and, potentially, the sites of production of Chinese artists. In addition, it’s worth remembering that tariffs and excise taxes were the largest source of government revenue in the US from 1789 until the raising of the income tax in 1944. Thus, the Trump administration’s choice to use tariffs against China is an appeal to tradition, and one that has the dangerous potential to once again become permanent policy, which would have a lasting impact on the global art market. 

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