Trading AI: Machine Knowledge Capital and the Trading System

Abstract

The year 2022 has been dubbed “the year AI got smart”. The year 2023 meanwhile is witnessing an explosion of concern about the governance of AI as large language models bring the science fiction future into everyday reality. Developments include a call from Geoffrey Hinton, one of the originators of this foundational technology, for a moratorium on further development; a call for regulation of AI from Sam Altman, the CEO of OpenAI, the firm which released ChatGPT, an AI system that quickly gained 100 million users worldwide, making it the fastest growing app of all time; and a drumbeat of legislation dropping in various jurisdictions to govern AI. The year 2023 also got a foretaste of the potential trade frictions that lie ahead as various authorities banned or temporarily blocked use of ChatGPT and various groups such as artists and writers mobilized to safeguard their professional niches from generative AI applications. Previously, AI was seamlessly integrated into the trading system as the ubiquity of traded “smart” devices attests; however, this was at a lower level of AI. The technological advances in the power of AI systems in the late 2010s and early 2020s materially changed matters, ushering in a new economic age, one of machine knowledge capital. The trading system has experience in developing standards and procedures for dealing with risks related to new technologies, including the use of scientific evidence, the impact and risk assessments, the role of international standards, and the precautionary principle. It also has some experience with sorting out whether trade restrictions are legitimately for national security or other policy rationales protected under the WTO’s general exceptions clause as opposed to ordinary trade protectionism. However, the trade system has not yet caught up with the digital transformation, appears to be entirely unprepared to deal with the large powerful AI systems now emerging, and stands to be overwhelmed, given the acceleration of innovation. This paper comments on these developments and suggests how the trading system can prepare to adapt.

Keywords: artificial intelligence, machine knowledge capital, international trade, WTO, dispute settlement, precautionary principle, national security

JEL Classification: O32, O33, O38, K20, K21, K24