How Trump’s Protectionism Could Increase Free Trade

Free trade is in trouble. That’s hardly startling news when the US has an avowed protectionist in the White House, but the problem runs deeper than it may at first appear.

Start with the distinction between trade in goods and trade in services. When a US manufacturer sells tractors overseas, that’s goods. When a US software firm creates an AI medical diagnostic tool and sells access via the internet to foreigners, that’s services.

It is much easier to keep trade “free” for the first category than for the second. The tractor crosses a border at a specific place and time. It may face additional regulation once inside the foreign country, but the transaction is relatively clean.

An online medical service, by contrast, could “cross the border” — that is, be used by someone outside the US — hundreds or thousands of times per day. It may also face licensing requirements, foreign liability law, extensive testing and, if the country has multiple jurisdictions, layers of regulation. In the European Union, the website itself would be subject to extensive regulation through laws regarding data, privacy and AI. Even within the EU, a supposed free-trade area, there are restrictions on trade in legal, medical and notary services, to name a few examples.

The wisdom or foolishness of these regulations is not the point. They exist, and most are not going away anytime soon. In fact, they will become only more important as the provision of services expands as a share of the global economy.

world economy