‘Clients are in a state of turmoil’ – Sir Martin Sorrell on the tariff fallout

The S4 Capital chief believes there will be a period of negotiations (if Trump’s ‘The Art of the Deal’ is anything to go by) but the headline, he says, is that clients are going to be “hesitant” to spend in the short term as they try to claw back losses from the hikes. In the long term, he argues, they’ll spend on tech “far more rapidly” than before in the quest for “faster, cheaper, better” to maintain their margins as they absorb some of the cost of doing business in America.

“I mean people are obviously bemused by it,” Sorrell tells The Drum. “It increases the levels of uncertainty […] There is going to be a period of extreme uncertainty in the short term, where clients are very hesitant to make decisions, where they will be very cautious. They’ll still make the decisions at the margin around investment and hiring. In the longer term, it will speed up the adoption of technological change.

“So the two things that are going to be really, really important in the longer term are going to be choosing geographies, in other words, where you think the world is going to grow faster than the average. And then the second thing will be adopting technology far more rapidly than you ever did before, which will be a very good thing for AI. I think AI adoption after an initial period of uncertainty will be even faster, because the premium in a slower growth, higher inflation, higher interest rate will be on making sure that you are as fast and as strong and as efficient as you possibly can be.”

Carmakers globally have been hit with a blanket 25% tax to import to the US. The tariffs on Vietnam (46%), Cambodia (49%), and Indonesia (42%) will mean higher costs for clothing and footwear retailers. Nike, for example, will face higher costs as its supply chain is dependent on Vietnam. A 50% tariff imposed on China threatens to slow down the rise of fast-fashion brands such as Shein and Temu, the latter adding in the region of $570m to the US economy in 2023, according to Oxford Economics.

Sorrell says the major knock-on effect will come from Chinese brands – especially in the auto, fashion and technology sectors – as they turn their focus to everywhere but America. “China will pursue what I call the Huawei strategy. Huawei was denied access in US and UK, and so it started to spread its influence elsewhere. And that puts domestic manufacturers under huge pressure because aggressive Chinese manufacturing and marketing at lower prices is going to be extremely competitive.”

But there could be opportunities as the fallout settles. After a “time of realization”, companies will adapt and focus on trying to grow – efficiently. He says: “They secure growth by going where the growth is. And they secure efficiency by implementing technology even more rapidly than they did before. So in that sense, it’s good news for us.”

At its performance update last week, S4 Capital told shareholders it had invested heavily in AI across its offering and broadened its previously tech-heavy client base to bring in more clients in automotive, telecommunications, pharmaceutical and FMCG. Last year, it won General Motors in a pitch that came down to the technical capabilities it had on offer.

In the UK, which has been hit with a 10% tariff, trade bodies including the Advertising Association and the Institute for Practitioners in Advertising (IPA) are leading the way in lobbying for guidance on how advertising agencies and marketers should navigate the situation.

Paul Bainsfair, director general at the IPA, spoke of “significant uncertainty for UK businesses” since Trump’s election.

“And their fears are not without foundation. Looking at the pure numbers, according to today’s Times, and in addition to the separate 25% tariffs on car exports, the 10% tariffs imposed on the UK mean that the £60bn of goods a year we export to the US have just become £6bn more expensive,” Bainsfair says.

“This, combined with rising employer National Insurance contributions, will make trading conditions increasingly difficult. The coming weeks will be critical in assessing the true impact, and the Q1 2025 Bellwether Report – out in a couple of weeks – will provide valuable insight into how businesses are adapting to these challenges.”

Talk of an advertising recession, then, has been ruminating through the industry. Ruben Schreurs of media advisory Ebiquity told The Drum last month that he anticipated a downturn.

Sorrell adds: “Tariffs are a break of growth, and in certain countries which are finding it difficult, like the European countries, that may well result in a recession.”