[International Politics in the Age of AI] ⑩ AI and International Political Economy

I. Introduction

The technological development and diffusion of Artificial Intelligence (AI) are progressing at an unprecedented pace. Since the release of ChatGPT by OpenAI, AI software with similar functionalities has been widely adopted. In particular, the increase in productivity and efficiency through the application of AI technology across the economy and industries is remarkable. While current AI technology primarily focuses on improving the speed of processing tasks using data and images in digital environments, the advancement of physical AI technology, which can perceive, understand, and act in real-world physical environments, holds the potential for transformative industrial shifts that are difficult to compare with previous stages. The crucial questions posed by the recent technological revolution, represented by AI, to international political economy concern who determines future wealth and standards, how this technological innovation alters the international political economy order, and how the benefits and advantages derived from new technologies will be distributed. This working paper examines these issues by focusing on trade and investment, where AI significantly impacts international political economy, and the labor market, where opportunities and challenges arising from AI utilization coexist.

II. AI and International Political Economy

Considering the changes brought about by AI in recent years, it is appropriate to view AI not merely as a tool for enhancing productivity and efficiency, but as a powerful force driving structural changes in the international political economy order. While the importance of territories, military power, economic strength, science and technology, and resources, which have been fiercely contested in state-led hegemonic competition in international politics, remains significant, the control and leadership over innovative science and technology, such as AI, and related infrastructure will determine new technological standards and norms. This, in turn, will exert immense influence on economies and industries, ultimately granting decision-making power over how the international political economy order is maintained or reshaped. Furthermore, competition is not limited to AI technology itself but is rapidly expanding and intensifying to encompass securing global supply chains for key components and products, as well as AI infrastructure, power supply, data, and computing.

These discussions hold significant implications, as AI has a high potential to alter the ways trade and investment shape the international political economy order. As illustrated in the figure below, the United States and China are exceptionally leading in AI technology development and investment. As evidenced by the intense technological competition currently underway between the two nations, AI is considered a critical domain not only for determining technological standards in industry but also for securing strategic advantage. Given that AI possesses a strong dual-purpose nature, capable of being utilized for both civilian and military objectives, both the US and China perceive the AI technology competition as an effort to gain economic superiority and, simultaneously, as a military hegemonic struggle.

Moreover, the issue of data, crucial for AI technology development and utilization, presents new challenges in trade. It is not merely about data accumulation and storage but is a critical factor determining who will hold the initiative in future AI development. In relation to these discussions, the construction of AI infrastructure, represented by data center development and stable power supply, as well as cross-border investments, are being actively considered (Roberts et al. 2024, 1279).

Source: Stanford Institute for Human-Centered Artificial Intelligence (2025, 39).

Source: Stanford Institute for Human-Centered Artificial Intelligence (2025, 39).

III. Discussions on AI Technology Development and Utilization Receiving Attention in International Political Economy

1. Enhancing Productivity and Efficiency

The advent of AI brings both opportunities and challenges to the economic and industrial sectors. AI technological innovation drives growth through enhanced productivity and efficiency, leading to an expansion of the economy. Specifically in trade, economic benefits and advantages are rapidly increasing through AI-driven automation and optimization of production, reduction of logistics costs, supply chain management, automated customs procedures, and overcoming language barriers (Meltzer 2018; WTO 2025). However, the prospect of whether AI technology will lead to inclusive growth for all remains uncertain. While it may bring positive functions such as technological innovation, economic growth, and income increase, there is also a possibility that it could further entrench existing economic inequalities (WTO 2025). Furthermore, new technological innovations utilizing AI are significantly contributing to the expansion of digital trade; as the importance of ICT goods and services increases, the problems generated by new technologies are also rapidly proliferating.

2. Digital Trade

As AI technology rapidly develops and is utilized, discussions related to digital trade are also intensifying. While there is no specific conceptual definition of digital trade, it is understood as the exchange of goods, services, and data between countries using digital technologies. These economic activities are conducted differently from traditional trade in goods and services, and key issues discussed in cross-border or inter-company activities include data flow, data localization, protection of source code and AI algorithms, and cybersecurity.

As evidenced by examples such as the Australia-Singapore Digital Economy Agreement (2020), the Chile-New Zealand-Singapore Digital Economy Partnership Agreement (2020), and the UK-Singapore Digital Economy Agreement (2022), recent trade agreements increasingly include provisions related to digital data (Jones 2023). Regional Trade Agreements (RTAs) and Digital Economy Agreements are functioning as key mechanisms for addressing AI utilization and regulation (WTO 2024). The fact that the EU-US Trade and Technology Council, established in 2021, discussed AI policy, semiconductor supply chains, setting technology standards, and responding to unfair trade practices, demonstrates that AI is being incorporated as a significant component of the international trade order and trade system.

3. Technology Standards

Technology standards determine new benchmarks in the trade environment, involving discussions on various aspects such as size, shape, design, function, performance, labeling, or packaging. While technology standards can be viewed as an economic outcome due to their potential to secure industrial leadership, they are also a critical issue in international political economy as they significantly influence future AI technological innovation and development. Considering the intense technological competition between the United States and China, determining AI technology standards signifies gaining an advantage in the hegemonic competition driven by AI technology and securing leadership in geopolitics and the international political order.

The US policy of prohibiting the export of high-performance semiconductor chips and semiconductor manufacturing equipment to China exemplifies the increasing reinforcement of AI-era nationalism, manifesting as export controls on core technologies and components. Through technological nationalism, countries increasingly perceive their domestic technological capabilities as directly linked to national security and survival, actively supporting AI technology competition. Within this trend, nations are engaging in fierce competition to develop Sovereign AI to secure AI technological sovereignty and data sovereignty.

Technology standards are essential tools for regulating AI technology while ensuring trustworthiness and accountability. However, AI technology regulation tends to be sector-specific, voluntary, and often industry-led. Governments frequently lack sufficient knowledge and information about new technologies, making them susceptible to industry influence. Consequently, responses to new technologies are often reactive rather than proactive. Determining technology standards in the AI field is a highly political process. While the discussion and coordination of technology standards are voluntary, their inclusion in international trade agreements carries legal weight, leading many participating countries or companies to respond with sensitivity.

4. Intellectual Property Rights

AI technology raises new issues concerning intellectual property rights. While the majority of AI-related intellectual property rights are held by a few big tech companies, sufficient guidelines are not provided regarding the copyrights of big data used in AI technology and the resulting materials. Realistically, it is difficult to expect companies to disclose core AI algorithms essential for their operations, and defining the copyrights of data used for big data training, as well as the copyrights of the outcomes derived from utilizing this data, is also challenging. Legal disputes are currently underway regarding materials and outcomes derived from AI training data used by big tech companies, and their resolutions will have significant implications for the future development of the knowledge industry.

5. Competition and Big Tech Monopoly

A key issue in the area of competition is the rapidly increasing influence of big tech companies such as Google, Facebook, and Microsoft, as they exclusively utilize data and lead technological development and innovation. Criticisms are also raised that the interests of a few big tech companies are disproportionately reflected, potentially solidifying the digital divide and raising issues of data governance and intellectual property rights (WTO 2024).

However, given their possession of foundational models, computer infrastructure, and large-scale data, these companies are recognized as key private actors with whom governments must negotiate. As seen in the case of the United States, AI technology development requires substantial initial private capital investment, and as demonstrated by China's case, it can be achieved through large-scale state-led investment. In this context, a few leading AI nations capable of making large-scale investments and big tech companies that have developed AI technology are likely to monopolize the economic value generated by new science and technology, thereby widening the technological and economic gap.

6. Data Flows and Data Localization

Policies regarding cross-border data flows and data localization vary by country. Securing high-quality big data is essential for AI technology utilization, and a data localization strategy could hinder AI technology development and application. Countries have chosen different policies and directions in various fields related to AI technology development (Goldfarb and Trefler 2019, 485-486). While US big tech companies emphasize the free movement of data, China prioritizes data localization strategies. In particular, regarding the free cross-border data flows that are becoming prominent in the AI era, the differing regulatory policies of various countries suggest that establishing governance for data storage and movement will be challenging. While AI technology itself is important, related AI infrastructure such as high-performance semiconductors, data centers, and cloud computing platforms are gaining attention as they are crucial resources that can be expanded and developed into other AI industry sectors (Wheeler 2025).

7. Ethical and Responsible Use of AI

Discussions on the transnational risks posed by AI technology have not yet been given sufficient attention. Considering the importance of the issue, there is a need to thoroughly address fair competition, ethical, transparent, and accountable AI use, personal data protection, and restrictions on the excessive and inappropriate use of algorithms by AI companies. Given the nature of the cross-border digital economy, consumers can be harmed by companies, whether intentionally or unintentionally, and discussions on these risks are urgently needed.

The EU, the US, and China are each developing governance and regulations related to AI utilization in their own ways. The EU is responding with a focus on human-centric regulation and risk management, while the US has adopted a market-centric strategy to encourage technological development and advancement by big tech companies. China, on the other hand, is pursuing a state-led AI development strategy. Recently, the EU has presented principles related to AI technology and ethics through the release of its General Data Protection Regulation (GDPR) guidelines. Protecting corporate source code can hinder the transparency and accountability in decision-making processes and make it difficult for consumers and workers to hold foreign companies accountable for their use of AI.

8. AI and Inequality

While the post-war international order, represented by the liberal international order, and global supply chains provided opportunities for economic growth to developing and least developed countries, advanced technologies like AI and related infrastructure investments are likely to exacerbate economic inequality between developed countries and emerging economies or countries lacking technological infrastructure. Previously, a dichotomous structure existed where developing countries pursued growth strategies leveraging low labor costs, and developed countries offered services and technologies for development. However, in the international political economy order emerging with AI, growth strategies based on comparative advantage are becoming increasingly untenable. While AI technological innovation promises economic development through enhanced productivity and efficiency, the issue of inequality and distribution is newly emerging, as its benefits are not equally distributed among all countries and societal members.

9. AI and the Labor Market

In the labor market, AI technology can bring about significant changes to organizations through the transformation of internal knowledge management and operational systems related to employment and work. While productivity and efficiency can increase rapidly, AI also poses a significant shock to the labor market. By automating and mechanizing substantial portions of workers' tasks and working hours, it can enhance corporate economic performance and profits, but it can also lead to serious social problems such as reduced working hours and job losses. In a situation where jobs and labor are rapidly being replaced by automation and mechanization due to AI technology, proactive efforts are essential for active labor market policies, including education and vocational training, and the expansion of social safety nets.

Technological innovation is not a new phenomenon in labor market changes. The introduction of machinery during the Industrial Revolution displaced human labor, and technological unemployment was already experienced. However, whereas previous technological shifts primarily affected low-wage, low-education workers, the current labor market changes driven by AI technology are significantly impacting high-education, high-wage workers as well, thus escalating into a crisis for the labor market as a whole.

It is still difficult to accurately assess the changes AI technology has brought to the labor market. According to studies analyzing U.S. labor market data, while the overall impact on industries and the economy is hard to pinpoint, industries highly exposed to AI technology have experienced a larger decline in employment for young people entering the labor market compared to middle-aged and older workers. Analysis of the U.S. labor market indicates that in occupations highly exposed to AI, particularly in fields such as software development, customer service, and office administration, entry-level workers aged 22-25 experienced a 6% decrease in employment between November 2022 and September 2025, immediately after the release of OpenAI's ChatGPT. In contrast, employment for middle-aged and older workers actually increased by 6-9%. Consequently, the younger generation experienced a relative employment decrease of approximately 16% (Brynjolfsson et al. 2025).

IV. Conclusion

The impact of AI on the political economy is multifaceted. The projected increases in productivity and efficiency through AI technological advancements can significantly contribute to economic growth and development. However, given the high potential for benefits and rewards to be concentrated among a few countries, corporations, and individuals, a comprehensive discussion across political, economic, and social spheres is necessary regarding the outcomes of technological changes represented by AI. Above all, the hegemonic competition in the international political economic order, driven by AI, is expected to have a significant impact on future international relations. The dual-use nature of AI technology leads to not only economic advantages in new technologies and industries but also concurrent military hegemonic competition. Furthermore, alongside the anticipation of new technologies, crucial discussions concerning safety, privacy, and other related issues are needed. The pace of technological revolution experienced by the international community over the past few years has been remarkable. However, discussions on how these new technologies interact with other related industries and how AI infrastructure should be expanded are still ongoing.■

VI. References

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■Author: Ji-yeon Song_Professor, Graduate School of International Studies, Seoul National University.

■ Contact: Jaehyun Lim_EAI Researcher

    Inquiries: 02 2277 1683 (ext. 209) | jhim@eai.or.kr