The article explores how a country can set the best trade and tax policies when dealing with a competitive market where companies have different levels of productivity. Protecting domestic industries can lead to more product options, but this benefit decreases when foreign companies with varying productivity levels leave the market. The study looks at scenarios where the domestic industry can change in size or stays the same. When the industry size is fixed, protection benefits come from trade effects, and the specific values of domestic taxes, import tariffs, and export taxes become crucial.