Beyond Protectionism: Why Free Trade Powers AI

Abstract

This paper argues that Keynes’ pre-1929 endorsement of free trade is emphatically urgent in today’s age of technological innovation, especially for three inputs of AI: talent, data, and hardware. Similar to Keynes’ recommendation, economies should promote free trade by minimizing the effects of political frontiers. Based on the endogenous growth theory, free trade strengthens incentives for innovation and knowledge sharing. Restricting trade represents a pure deadweight loss for digital services that have near zero marginal costs of reproduction. Despite common critiques, free trade actually strengthens international security from mutual dependence and leads to savings from pooling global R&D efforts.