This paper examines how country, industry, and firm characteristics interact in general equilibrium
to determine nations’ responses to trade liberalization. When firms possess heterogeneous productivity,
countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs
induce reallocations of resources both within and across industries and countries. These reallocations
generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative
advantage industries than in comparative disadvantage industries, and magnify ex ante comparative
advantage to create additional welfare gains from trade. The improvements in aggregate productivity as
countries liberalize dampen and can even reverse the real-wage losses of scarce factors.