Symbolism, Imagery, Allegory
Cedar is quite literally everywhere in the book; you can't go too many pages without a reference to the trees themselves or something that's made out of cedar wood (for example, it seems that everyone's house is made out of cedar on San Piedro).
Beyond that, cedars and their smell—and, in fact, a particular cedar tree—have tremendous significance for Ishmael. In the hollowed-out base of a cedar tree where they hid as children, Ishmael and Hatsue canoodled and carried on their secret romance:
Inside their cedar tree, for nearly four years, he and Hatsue had held one another with the dreamy contentedness of young lovers. With their coats spread against a cushion of moss they'd stayed as long as they could after dusk and on Saturday and Sunday afternoons. The tree produced a cedar perfume that permeated their skin and clothes. They would enter, breathe deeply, then lie down and touch each other—the heat of it and he cedar smell, the privacy and the rain outside, the slippery softness of their lips and tongues inspired in them the temporary illusion that the rest of the world had disappeared; there was nobody and nothing but the two of them. (12.3)
Ishmael associates cedars with the life he had before the war—that is, before he lost Hatsue (and his arm)—and it's a life he misses a lot. Also, given that he frequently mentions the smell of cedars in particular, and since we know smell is the sense most powerfully associated with memory, perhaps we can go out on a… limb (pardon the pun) and say that cedars are also a larger symbol of memory in general and the way it haunts us. After all, the number of references to things made out of cedar is probably only matched by references to the past.