artsy_In recent weeks, a pall has been cast over China’s once-thriving art market. In Beijing, authorities are continuing to demolish major arts districts as part of an alleged crackdown on organized crime. Meanwhile, across the border, Hong Kong is in its 12th week of anti-government protests against a controversial extradition bill. Convulsed with daily demonstrations and clashes with the police, Asia’s most important art hub shows little sign of returning to normalcy ahead of the autumn auctions.

Compounding these issues is the latest escalation of the trade war between China and the United States. President Trump has announced a hike in tariffs, which will impact Chinese art and antiquities. The 15 percent tax will go into effect on September 1st. The abrupt increase comes as a further blow to dealers, collectors, and auction houses who were already bracing for the potential fallout from trade frictions. Starting next week, any Chinese-made paintings, drawings, sculptures, collages, prints, antiques older than 100 years, and other collectible goods entering the U.S. will be subject to the new tariff. Due to Hong Kong’s separate legal status, exports from the city are not subject to Trump’s tariffs; however, galleries and auction houses there will still be affected.

“Sales were already impacted since the start of the trade war earlier this year as companies started losing money, along with the social unrest in Hong Kong (the epicenter of Asia’s art market). This new tariff will certainly hurt collectors’ confidence even more,” said Jeffrey Lee, director of Longmen Art Projects, a gallery with spaces in Shanghai and Hong Kong. “Big picture, this could bring the Chinese art market down further.”

Earlier this summer, Pace Gallery founder Arne Glimcher cited the trade tensions between China and the U.S. as part of the reason behind the shuttering of his Beijing outpost. Hong Kong-based dealer Pascal de Sarthealso closed his location in Beijing after being evicted due to the demolition in the Caochangdi art district last year.

According to cultural economist Clare McAndrew’s 2019 “Art Market Report” published by Art Basel and UBS, there was a contraction in the Chinese art auction market last year. Art sales in China fell three percent to U.S. $12.9 billion, with buyers turning cautious due to fears of a looming debt crisis. Moreover, fewer high-quality pieces were on the market. Meanwhile, auction sales in Hong Kong dropped 22 percent and auction sales in Mainland China saw a 6 percent decline.

Johnson Chang, founder of prominent Hong Kong-based gallery Hanart TZ, noted that, although interest in contemporary Chinese art has dampened in Asia, demand for Chinese ink paintings in the West has increased. Since the U.S. tariffs apply to historical art and antiquities, he fears that an important sector of the market will be hit.

In the U.S., the tariffs continue to be met with opposition from the art world. “If this tax stays for a long period of time, it’s devastating for our business,” said Eli Klein, the owner of an eponymous gallery of Chinese contemporary art in New York. “It’s going to hurt people here and it’s not going to serve its purpose.”

Klein is joined by several critics in the art world who question the tariffs’ability to promote U.S. interests or alter China’s trade practices. According to the Art Dealers Association of America (ADAA), who has repeatedly voiced concerns about the tax to the Office of the United States Trade Representative (USTR), small and mid-sized dealers in the U.S. will be hit hardest.

Many gallerists are looking for ways to sidestep the tax. Klein, for instance, plans to exhibit contemporary artists from Taiwan instead of China in his next show. He said, “I can’t avoid certain exhibitions forever, but I certainly made plans for the short term to minimize the impact.” The gallerist estimates that about 30 percent of his collector base is located in the United States.

Daniel Chen, director of Chambers Fine Art, a gallery with branches in New York and Beijing said that while they will need to keep prices consistent across their locations, it won’t be feasible for the gallery to absorb the cost of the tariffs. “Instead, we will have to become extremely selective in terms of what we decide to import into the U.S. from China, and become more active in finding and providing opportunities for our artists to create new work outside of China,” he said.

Chen fears cultural exchange will suffer most as museums, institutions, and galleries alike will be forced to be selective and limit exhibitions of Chinese art. “It is a detriment to the U.S. audience to have less access to, and therefore less understanding of, this moment in China's cultural history,” he said.

McAndrew’s 2019 report indicates imports of works of art from China into the U.S. represent a relatively small share of less than 5 percent of the U.S. total value of imports of art and antiques (versus close to 50 percent from France and the United Kingdom).

However, the percentage of art and antiquities affected will be much higher as the tariffs apply to China-made artwork arriving in the U.S. from anywhere in the world. “Tariffs will impact the sale of China-origin artwork and antiques by London dealers to U.S. buyers, even if the works being sold have been out of China for decades,” explains Diana Wierbicki, head of the global art practice at law firm Withers.

The new border tax will also complicate sales as it may not be clear whether artwork was created in China or elsewhere, particularly in the case of antiques. Wierbicki noted, “From a transactional perspective, parties will need to clarify who will be responsible for conducting due diligence on such pieces and bearing the costs and risks associated with that.”

Wierbicki predicts that U.S. collectors are likely to hold off on buying in the hopes that the policy changes. In the meantime, she believes collectors will see the value of their U.S.-based Chinese art collections decline slightly because work could be less marketable and harder to sell.

Auction houses, who were among the most vocal critics of the tariffs when they were first announced last September, are not as concerned about the short term. Both Christie’s and Sotheby’s said they do not expect their upcoming Asian Art Week sales in New York to take a hit because consignments are already in the country. However, a spokesperson from Christie’s said in a statement to Artsy, “If the U.S. tariffs on art and antiquities of Chinese origin remain in effect beyond the current calendar year, Christie’s expects a portion of consignments may necessarily shift to other regions such as London, Paris, or Hong Kong.”

Just as auction houses may make adjustments, U.S. art fairs are also likely to be affected as international vendors may hesitate to exhibit artwork from China. Art Basel was reluctant to comment. Fair representative Dorothee Dines said in a statement to Artsy, "With the situation continuing to change so rapidly and our show in Miami Beach still being over three months away, we will not speculate about the potential impact.”

While it may be too early to determine how the trade war and the protests in Hong Kong will affect the global art market. McAndrew said, “The art market’s response to political and economic uncertainties is becoming more rapid, with buyers and sellers more aware and reactive to what’s going on in the wider context than before.” She added that the new regulations could encourage more illicit, hidden transactions, which are detrimental to the market, citing the example of certain parts of Europe.

As her report states, the United States’s longstanding free-trade policy allowing duty-free imports has helped cement its position as the world’s largest market for art sales. “[The tariffs] will potentially damage sales in New York, where works are brought for sale and generate revenues and a range of ancillary benefits for the [U.S.] economy,” she said.

Despite fears of a market downturn, some are cautiously optimistic about the future. Chang for instance said he remains committed to showing Chinese art in December at Art Basel in Miami Beach despite the risk of lower profit margins. “It will affect our business for sure…but there is always a place for Chinese art in the world,” he said. “Nobody knows how long this trade war will last. We will just have to wait it out.