ABSTRACT
This chapter departs from the conventional international trade theory and welfare economics, that welfare depends on private consumption of goods and services, in an attempt to construct a theory of protectionism, tariff bargaining, and customs union formation. In order to do so, it has posited a preference for industrial production, involving the treatment of industrial production as a collective consumption good the quantity of which is governed by commercial policy. The chapter suggests that industrial production is a single aggregate, with countries having varying comparative advantage in industry as opposed to non-industrial production. The variety of industrial production allows countries to be both importers and exporters of industrial products, and in combination with the preference for industrial production will motivate each country to practice some degree of protection. In the circumstances posited, a country can gratify its preference for industrial production only by protecting the domestic producers of commodities it imports.
