This article studies the domestic gains from trade using a model with variable markups and multiple sectors in an Input-Output structure. I find the domestic gains from trade are larger with variable markups, and decrease the higher the cost pass-through. Computing the model to the US in 1997 and 2007, I quantify the gains from trade to be 6.1%. In this period, the pro-competitive effect dominates the anti-competitive effects, with markups decreasing in all markets. This is a first approximation to general equilibrium models with both competitive effects of imports, and their interaction with the gains from trade.

This paper studies the effect of the China Shock on US markups using a difference-indifference empirical design. Trade liberalization affects domestic markups through both sales competition and the cost channel. To account for both, I combine markups constructed from Compustat data with Input-Output tables. I find that, as a result of normalization of trade with China, US firms reduced their markup on competing goods by -0,04% on average, while firms facing liberalization on their inputs instead increased their markups by +1,4%. My findings suggest the anti-competitive effect of trade is as important as, and potentially larger than, the pro-competitive effects of trade.