Code for: Inventories, Integration, Productivity, and Welfare

Trade barriers introduce logistical frictions that shape inventory management decisions, yet they are often reduced to simple iceberg costs in trade models. We extend a general equilibrium inventory framework to incorporate tariffs and delivery frictions, showing that firms hold more inventory when international frictions are high. Our model reveals that reducing these barriers leads to greater efficiency gains than conventional trade models predict, with an 8% higher long-run consumption increase. Anticipatory effects ahead of tariff changes drive pronounced boom-and-bust cycles in trade and economic activity, mirroring past policy shifts.