A key prediction of the Helpman, Itskhoki and Redding approach is an inverted U-shape relationship between wage inequality and trade openness.
Starting from the closed economy, reductions in trade costs necessarily increase wage inequality. But as trade costs continue to fall, wage inequality reaches a peak and starts to fall back. The intuition for this result stems from the discrete jump in a firm's wages that occurs when a firm enters the export market. When some firms export, while others do not, then the additional revenue generated at exporters is shared with only the workers at exporters so that export-market access contributes to wage inequality. When no firm exports, a small reduction in trade costs increases wage inequality, because it induces some firms to export and raises the wages paid by these exporting firms relative to domestic firms. At the other extreme, when all firms export, a small increase in trade costs raises wage inequality, because it induces some firms to cease exporting and reduces the wages paid by those domestic firms relative to exporting firms.