Inventory conditions and tariff pass-through: evidence from U.S. softwood lumber

Abstract

Using 25 years of monthly U.S.–Canada softwood lumber data and state-dependent local projections, we find that marginal tariff pass-through at six months declines monotonically with the pre-existing inventory-to-shipments ratio, from 1.8% per percentage point at the 10th percentile to approximately zero at the 90th. The gradient is statistically distinguishable from zero at and below the 25th percentile and indistinguishable above the median. Duty-exclusive Canadian export prices do not fall after duty increases, so pass-through at the border is at least complete and the inventory gradient arises downstream, in the U.S. market price. Regime-specific impulse responses align with this short-run gradient and are consistent with the qualitative prediction of the competitive storage model, though the interaction coefficient is imprecisely estimated given the 18 tariff shocks in the sample.