In highly competitive product markets, firms can internalize other firms’ resources through interfirm collaboration. Using a longitudinal dataset on strategic alliances among private and public firms in Europe, this study examines how industry competition induced by international trade inflows affects the interfirm competitive and cooperative dynamics. We document that industry-level competition shocks, caused by Chinese import penetration, are a key driver in shaping corporate alliances. Notably, firms with constrained cash flow but ample cash reserves are more likely to form alliances in industries experiencing competition shocks. After these alliances, we observe improvements in cash flow growth and investment, with this positive impact of interfirm collaboration being more pronounced among private firms. These findings suggest that strategic alliances are crucial tools for restructuring following international trade inflows, particularly among small, private enterprises.