Every day, you’re paying a tax that Congress never voted on, a tax that’s growing rapidly heavier. Yet you may not even know when you’re paying this tax because it goes by another name: tariffs. It is baked into the prices of products, from sneakers to semiconductors to compression springs, that are manufactured abroad or that use imported components or materials—that is, a large portion of the things Americans buy.

As the presidential election approaches, all signs point to higher tariffs on American imports—no matter who wins. (While Vice President Kamala Harris was the clear favorite to be the Democratic nominee as this article went to press, it’s safe to say that any potential rival would have a similar trade agenda.) The consequences will reach far beyond those ballooning hidden taxes that Americans pay. They will also influence global geopolitics and touch every business and consumer in the U.S., plus billions more worldwide.

The trend is still hard to believe, for those who have been following the issue. After decades of working for freer trade worldwide, the U.S. has reversed course, with both parties on board. The two sides don’t offer identical trade proposals—Donald Trump’s would be much more severe—but broadly speaking, this is a rare issue on which both sides of the aisle are aligned.

Both parties are pursuing this agenda to assert their commitment to protecting American industry and jobs from overseas competition—but business mostly doesn’t like it, especially companies selling consumer goods to price-sensitive customers already wary of inflation. “Unfortunately, there does seem to be this movement within both parties to turn insular and turn away from trade in ways that will be economically damaging,” says Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “They’re going to end up hurting average Americans.”

Tariff proponents, in making their case, often cloud how they work. Tariffs require U.S. importers of foreign goods and services to pay duties to the U.S. Treasury, based on what was imported. Research over decades finds that importers pass the extra cost on to consumers in the form of higher prices—or they are forced to cut costs or accept lower profits.

This simple fact tends to be missing from the populist rhetoric: The exporting country does not pay the tariff. The importing company does. Donald Trump’s campaign boasts that as president, Trump “imposed tariffs on China that brought billions of dollars into the federal Treasury”—failing to note that it was American consumers and companies who paid those billions. Joe Biden’s White House said often that tariffs he imposed “protect American workers and businesses,” without mentioning that those tariffs have also hurt many workers and businesses.

David French, the National Retail Federation’s top government relations executive, tells Fortune, “Our hope is the next administration will move into a more comprehensive nontariff trade barrier discussion that includes multilateral negotiations. We’d love to be writing trade deals again.”

He’s likely to be disappointed. As the campaigning heats up, Democrats will likely stand on Biden’s record of imposing tariffs, pointing proudly to steeply increased tariffs on Chinese steel, aluminum, semiconductors, electric vehicles, batteries, solar cells, and more.

Trump goes much further, proposing a 60% tariff on all Chinese imports and a universal 10% tariff on imports from all countries—radically high and broad tariffs not seen in the U.S. since World War II. Goldman Sachs calculates Trump’s program would raise inflation by 1.1 percentage points and reduce GDP growth by a half point, a significant drop when GDP has most recently been growing at an annual rate of only 1.4%. Trump’s tariffs would cost a middle-income household $1,700 a year, according to the Peterson Institute for International Economics.

News that the U.S. is enthusiastically cranking up tariffs under both parties would have sounded otherworldly for most of the past 75 years. For the first portion of U.S. history, the bulk of the federal government’s revenue—in some years nearly 100%—came from tariffs. The country began to trim its reliance on tariffs after a 1913 constitutional amendment allowed income tax. Then, at the end of World War II, 28 countries banded together to negotiate agreements that would reduce tariffs and other trade barriers, reasoning that lowering these barriers to free trade would leave all the participating countries better off. That group’s successor, the World Trade Organization (WTO), today has 164 member countries, whose progress over the decades has been dramatic. In 1948, the U.S. collected duties that were 14% of the value of all tariffed imports and 6% of total imports. By 2017, the respective tariff rates had plunged to 5% and 1%.

Then everything changed. In 2018, President Trump—who had famously tweeted that “trade wars are good, and easy to win”—followed through by launching a grand-scale trade war. He imposed a slew of tariffs that eventually covered Argentina, Brazil, Canada, China, the European Union, India, Mexico, and South Korea. Most of those countries quickly launched retaliatory tariffs against the U.S.—which in turn hurt American manufacturers’ ability to compete in those growing overseas markets.

Result of the trade war: a draw at best. U.S. imports fell, but so did exports because of the retaliation, according to an extensive analysis, The Return to Protectionism, by researchers at several universities. (The pandemic did not distort the results, which were published in February 2020.) The authors found that U.S. consumers and firms that bought imports lost $52 billion. And, the researchers observed, the tariffs appeared to be intensely political: Industries that were protected by U.S. tariffs were concentrated in electorally competitive counties.

It doesn’t sound like a policy triumph, or even a political one for Trump: Foreign retaliatory tariffs disproportionately hit industries in Republican counties, and of course Trump lost his bid for reelection. Yet while President Biden changed many of Trump’s policies, he barely touched Trump’s tariffs, keeping nearly all of those he inherited and adding many more, mostly targeting China.

“During the first couple years of this presidency, with the challenge of inflation, there was every incentive to think about ways to reduce inflationary pressure, including the reduction of tariffs—yet it appears that keeping the tariffs against China was a higher priority,” says Theodore Bunzel, head of Lazard Geopolitical Advisory at the Lazard financial advisory and asset management firm. “That is striking in terms of the sea change it represents.”

Put simply: U.S. protectionism, which reached its apex in the Great Depression and was nearly extinct by 2017, has been growing again, with bipartisan support.

Chart shows the effective U.S. tariff rate on imports

Meanwhile, beyond tariffs, the geopolitical forces that prompted today’s trade wars, prominently including the U.S.–China rivalry, have elevated business’s role in policy. “CEOs today have a new job in Washington,” says Klaus Kleinfeld, who dealt with trade policy when he was CEO of Alcoa and Arconic. “It’s broader than tariffs.” Companies and technology have become crucial players in international relations. “Corporations have increasingly become both the objects and instruments of foreign policy,” wrote Lazard’s Bunzel, Jami Miscik, and Peter Orszag in a recent article in Foreign Affairs.

Examples are everywhere. Elon Musk’s Starlink satellite-based internet service plays a vital role in Russia’s war with Ukraine. The U.S. forbids Nvidia from selling its most advanced chips for AI to China. The CHIPS and Science Act subsidizes semiconductor makers—American (such as Intel) and foreign (such as Taiwan’s TSMC and South Korea’s Samsung)—to build factories in the U.S.

Or consider Microsoft’s April announcement that it was investing $1.5 billion in G42, an AI company based in Abu Dhabi, capital of the United Arab Emirates. The announcement didn’t mention a critical element of the deal: that G42 would get rid of all its Chinese equipment, including that made by Huawei, the giant Chinese tech company that the U.S. considers a national security threat.

Business may have to face starkly different government priorities and geopolitical realities depending on who wins the election, with Democrats likely to follow Biden’s lead on these issues. Biden embraced America’s alliances, notably NATO, while Trump has disdained them, even threatening to take the U.S. out of NATO. Biden called Russian President Vladimir Putin “a killer,” while Trump has often praised him. Biden refused to meet with North Korean leader Kim Jong Un without preconditions, while Trump met with Kim three times, saying they “fell in love.”

Businesspeople like to say they can play to win if they know the rules. What they hate is when the rules keep changing. The outlook: With both political parties eager to reshape U.S. engagement in the global economy, wise business leaders will be checking the rules every morning.

To-do list

Whatever comes next, here’s how U.S. companies can prepare.

Bring in dedicated policy expertise.
Says Theodore Bunzel of Lazard: “We’re seeing a lot more companies designating a chief policy officer or chief geopolitical officer.”

Do realistic scenario planning.
What would your business do if a conflict—think Gaza or Ukraine—suddenly escalates? What if a major U.S. ally shifts its majority party in a national election, as the U.K. and France did recently? Apply such scenarios to an internal stress test: How would your business fare?

Accept that lobbying doesn’t work as it used to.
Pleas to Uncle Sam for protection based on national security will be received more favorably than traditional arguments based on economics.

Run the numbers.
How would Trump’s proposed 60% tariff on all imports from China and his universal 10% tariff affect your company and industry? What retaliatory responses seem likely? Consider adjusting your company strategy based on your findings.

Scorecard

Where the Democrats and Republicans stand on other issues business cares about.

Taxes
The future of the wide-ranging 2017 Tax Cuts and Jobs Act, scheduled to expire at the end of 2025, is the big question. Trump, who signed it into law, wants to extend it. Democrats want to let it expire. Among the many changes for business if the law expires:
–Taxes on noncorporate businesses, like sole proprietorships, would rise.
–The corporate tax rate could rise from 21%, but exactly how much would be determined by Congress. The pre-TCJA rate was 35%.
–Companies would no longer be allowed to deduct the full cost of capital investments in the year spent, and instead would have to amortize the cost over a period of years.

Regulation
Trump would roll back regulation, much as he did in 2017. The Democratic nominee would likely continue Biden’s regulation of companies’ actions affecting the environment, energy, finance, and mergers.

Immigration
The Democratic Party platform will emphasize securing the southern border, consistent with Biden’s recent toughened stance—increasing deportations and denying asylum to migrants who cross unlawfully. Trump has promised the “largest deportation operation” in U.S. history.

Labor
The Democratic Party will strongly support labor unions. Trump has been courting union members, but as president he was not labor-friendly: The AFL-CIO called his record “catastrophic and devastating.”

Clothing displayed in a <a href="https://fortune.com/company/gap/" target="_blank">Gap</a> store. — Gap Inc. paid $700 million in import duties in 2022, while Chinese fast-fashion company Shein paid nothing.

No matter who wins the election or how the next president manages U.S. trade, a few outcomes seem likely.

Targeted countries will retaliate.
They always do, and have done so over the past six years. China, for example, retaliated against Trump’s tariffs by imposing tariffs on U.S. agriculture products that China imports from several states. Those farm states may not have many people, but each has two senators who weren’t happy. Trump learned that lesson and now promises to retaliate against the retaliators by enacting the Trump Reciprocal Trade Act, which he recently explained to a Wisconsin audience thus: “Reciprocal trade—that’s you screw us, we screw you.” Such tit-for-tat tariffs can escalate quickly.

Foreign companies will find work-arounds.
Shein, a fast-growing fast-fashion Chinese retailer selling globally, uses a curious business model. Rather than shipping merchandise to the U.S. in large, economical containers for distribution to customers from U.S. warehouses, it mails U.S. customers’ individual purchases direct from China. One reason: Packages valued at less than $800 are exempt from U.S. tariffs. A congressional report says the American retailer Gap Inc. paid $700 million in import duties in 2022 while Shein paid nothing—being the exporter, not the importer—and the situation didn’t help the American company compete with the Chinese one. While Gap Inc. likely passed along the cost of its tariffs to customers, driving up its prices, it’s hard to imagine many of Shein’s U.S. customers bought $800 worth of $7 sweatshirts and $1 earrings and had to pay duties.

As protectionism expands, it will become complex and tangled.
The appliance maker Whirlpool’s experience is cautionary. One of Trump’s first trade actions was to impose steep tariffs on imported large residential washing machines. “It was a moment-in-time solution that allowed us to regain our competitive footing,” says Whirlpool general counsel Kyle De Jong. “Eighty percent of what we sell in the U.S., we make in the U.S.” But those measures expired in 2023, and now U.S. tariffs are working against Whirlpool. The company must pay tariffs on some component parts that are available only in China, but when those same components arrive in the U.S. inside Asian-made washers, they aren’t separately tariffed. In addition, Whirlpool uses American-made steel to ensure a localized supply chain while avoiding tariffed imported Chinese steel. But De Jong points out that the company’s foreign competitors can use that cheaper Chinese metal in their products. “That’s the competitive dynamic we’re concerned about,” he says, “the unintended consequences for American manufacturing.”

Hurried tariffs may be the worst tariffs of all.
James Wallar, a retired Treasury official and trade expert, argues in a recent article that the Trump and Biden administrations opted “for speed and optics rather than careful analysis following international rules.” Imposing tariffs on one country, as Trump and Biden have mostly done, is fast and easy for constituents and voters to understand. But significant change generally comes via multilateral negotiations, not piecemeal actions against individual countries. Wallar says the Biden administration undermined its own international profile and ability to exert pressure on other countries. Its quick and narrow tariffs on China “might look tough domestically—protection and tariffs are politically popular among voters,” he says, “but it has diminished U.S. global leadership on trade policy and its effectiveness in promoting permanent change.”

Additional reporting by Alena Botros

A version of this article appears in the August/September 2024 issue of Fortune with the headline, “What can business expect from the next president?”

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