We study the procompetitive gains from international trade in a
quantitative model with endogenously variable markups. We find that
trade can significantly reduce markup distortions if two conditions
are satisfied: (i) there is extensive misallocation, and (ii) opening
to trade exposes hitherto dominant producers to greater competi
tive pressure. We measure the extent to which these two conditions
are satisfied in Taiwanese producer-level data. Versions of our model
consistent with the Taiwanese data predict that opening up to trade
strongly increases competition and reduces markup distortions by
up to one-half, thus significantly reducing productivity losses due to
misallocation.