Trade is Good for Competition, but Competition is Great for Trade

Abstract

It may seem obvious that good trade policy can promote competition. That is, by opening up a domestic economy to increased trade, additional competitive pressures may be placed on domestic producers, thereby decreasing domestic market power and improving industry performance in the form of lower prices, production that is more efficient and more innovation. On the other hand, although it may appear less obvious, good competition policy can be a means for fostering good trade policies. A competitive domestic economy, as enhanced by appropriate competition policies, can be a good defense against protectionist sentiments. In other words, robust competition enhances domestic prosperity and international competitiveness, which are conducive to political conditions supportive (or at least less obstructive) of freer trade. Indeed, this note argues that the benefits of good trade policy for good competition policy may be overemphasized, while the benefits of good competition policy for good trade policy may not be fully appreciated.