Abstract
I study the gains from trade in small open economies with domestic and foreign granular heterogeneous firms using a sufficient statistic approach. I show that granularity augments the standard trade welfare formula under heterogeneous but atomistic firms with a multiplicative factor summarizing the rich within and across-industry distortions due to firms' variable strategic markups. Conveniently, this factor only requires expenditure shares on domestic firms and can be computed with the same data employed to construct standard concentration measures. In contrast to previous results in the literature, the welfare gains from trade are locally unbounded. To arrive at this result, I uncover the following intermediate statistics useful to characterize the relationship between trade and competition: (i) theory-consistent concentration measures summarizing changes in consumer welfare, (ii) aggregate markups and profits under both quantity and price competition, and (iii) an index of across-industries distortions. Using this framework, I argue that the recent evidence showing an increase in market concentration in the last decades implies increasing pro-competitive gains from trade. In this regard, the recent return of protectionism may have been costlier than expected through this channel.