Inventories, Integration, Productivity, and Welfare

We augment a heterogeneous firm trade model with rich logistic frictions--order costs and delivery times--that differ by source and tariffs to evaluate how trade influences the aggregate economy. These frictions lead importers to order larger amounts less frequently, resulting in an importer inventory premium. As trade barriers fall, firms import more frequently, leading to lower inventories and more efficient distribution, releasing resources for consumption. With inventories, the gains from trade are larger. However, these long-run differences are small compared to the transition around a possible tariff increase, as firms stockpile in advance of a possible tariff increase.