(Revised March 2025)

We show that trade liberalization can reduce technology diffusion. Using Brazilian data, we document that tariff cuts lead to fewer technology transfers from foreign to Brazilian firms and a decline in Brazilian firms’ citations of foreign patents. The most substantial drop in citations occurs among firms located near those receiving technology transfers, largely driven by a reduction in citations to firms that previously transferred technology to Brazil. These findings suggest that lowering import tariffs can slow the diffusion of foreign ideas by reducing technology transfers. In our quantitative model, when Brazilian tariffs fall, foreign firms opt to export their products directly rather than transfer their technology, weakening knowledge diffusion. An optimal subsidy for technology transfers amplifies the welfare gains from trade liberalization by a factor of four.