Most nations of the globe are inclined to implement trade protection policies. Because all nations prefer a balance of trade surplus with exports exceeding imports, they are inclined to implement policies that restrict imports and promote exports. The three primary government trade policies are tariffs, quotas, and subsidies.
Tariffs: One common trade policy is the imposition of tariffs on imports. Tariffs are simply taxes placed on imports. Tariffs work like any other taxes. A tariff or tax is added to the price of the imported good. Suppose, for example, that the price of an imported good is $10. A tariff of $1 would then force importers to sell each good for $11. Domestic producers are usually thrilled with a tariff because the higher price of imports is bound to reduce the quantity of imports sold. This means more domestic production is likely to be purchased. Moreover, domestic producers can also raise the price they charge for their goods.