International Trade Dependence and Inventory Dynamics

have been increasingly exposed to unexpected events or shocks originating from abroad. For instance, the COVID-19 pandemic and resulting supply-chain disruptions, including bottlenecks and increased costs for shipping goods internationally, have significantly affected firms that rely on global markets for production inputs or product sales. The risk of trade disruptions has also increased with heightened geopolitical conflicts, such as the war in Ukraine and the growing tensions between the US and China. Inventories are critical for smoothing the impact of shocks.1 For instance, firms with high inventories of International Trade Dependence and Inventory Dynamics