When retail executives start swearing during earnings calls, something is clearly amiss. That’s what happened recently when the CEO of United States-based luxury furniture retailer Restoration Hardware saw his company’s share price plunge by more than 25% in after-market trading.
The cause? Donald Trump had just declared “Liberation Day”, announcing sweeping new tariffs on nearly all imports. For companies like Restoration Hardware – which rely on suppliers in China and Vietnam, and now face tariffs of over 50% – the impact was immediate: higher costs, disrupted supply chains and enormous uncertainty.
New Zealand exporters were spared the worst, with exports facing only the 10% baseline tariff under the new regime. But the lesson is clear. In today’s world, the real threat isn’t always direct exposure, it’s volatility.
Trump’s tariffs sparked a nosedive in share markets and reignited concerns about the reliability of global trade. And while tariffs may rise and fall, uncertainty seems here to stay. This is why an idea first developed by journalist and author Jane Jacobs in the 1980s deserves renewed attention.
In Cities and the Wealth of Nations, Jacobs argued that sustainable economic growth isn’t driven by national policy or protectionism but by what she called “import replacement”: where cities and regions develop the capacity to produce goods they once imported.
The concept is often confused with import substitution, where governments impose tariffs or subsidies to protect domestic industries. But Jacobs’ model is different. It’s not about shielding firms from competition. It’s about growing new capabilities from the ground up.
A smarter response to volatility
Import replacement happens when entrepreneurs identify goods currently sourced from elsewhere and start producing them locally, not because tariffs artificially advantage them but because they’ve found a better way to meet local needs. Over time, this drives specialisation, innovation, and eventually new exports.
Jacobs believed this bottom-up process was the real engine of economic resilience. And she was right. In an era marked by pandemics, war, climate volatility and policy shocks, the ability to adapt quickly and locally is more valuable than ever.
New Zealand saw this first-hand during COVID-19. When global supply chains stalled, we found ourselves unable to access essentials from PPE to packaging, diagnostic swabs to digital hardware. Some firms responded with ingenuity. Others waited. In many cases, local capacity simply wasn’t there.
That experience revealed an uncomfortable truth: trade agreements alone don’t secure economic sovereignty. It depends on the capability to make, adapt and substitute when the system falters.
Some entrepreneurs are already seizing the moment. In the US, for example, founder of activewear brand XX-XY Apparel, Jennifer Sey, argues that trade disruption creates space for ethical, transparent supply chains closer to home. For her, localisation is not just risk management, it’s a business opportunity.
But rebuilding domestic capacity isn’t easy. It takes capital, skilled workers and time. And tariff-based incentives can vanish as quickly as they appear. That’s why the kind of import replacement Jacobs envisioned wasn’t a reactive policy tool but a long-term development strategy.
What import replacement could look like
The same logic applies to New Zealand. We are heavily dependent on imported goods in critical sectors like machinery, pharmaceuticals, digital infrastructure, fertilisers and food processing. If any of those supply chains is disrupted, we’re not just inconvenienced, we’re exposed.
To reduce that vulnerability, we need to think strategically. That might mean developing domestic capacity to manufacture essential health products, or supporting entrepreneurs working on substitutes for imported fertilisers or packaging materials.
It could mean encouraging research institutions to develop substitutes for materials we currently source offshore.
Universities and other research organisations can play a vital role. By collaborating with startups and small or medium-sized businesses, they can accelerate innovation. From prototype to production, tertiary institutions can help translate research into real-world resilience.
Public procurement could also be better leveraged. Government contracts could reward suppliers who help reduce import dependency and build options into our domestic supply chains.
Crucially, we need to map our vulnerabilities. Which imports are critical to key sectors? Where are we reliant on a single country or supplier? What could we produce regionally, if not nationally, with the right insight and capability?
New Zealand exporters were spared the worst, with exports facing only the 10% baseline tariff under the new regime. But the lesson is clear. In today’s world, the real threat isn’t always direct exposure, it’s volatility.
Trump’s tariffs sparked a nosedive in share markets and reignited concerns about the reliability of global trade. And while tariffs may rise and fall, uncertainty seems here to stay. This is why an idea first developed by journalist and author Jane Jacobs in the 1980s deserves renewed attention.
In Cities and the Wealth of Nations, Jacobs argued that sustainable economic growth isn’t driven by national policy or protectionism but by what she called “import replacement”: where cities and regions develop the capacity to produce goods they once imported.
The concept is often confused with import substitution, where governments impose tariffs or subsidies to protect domestic industries. But Jacobs’ model is different. It’s not about shielding firms from competition. It’s about growing new capabilities from the ground up.
A smarter response to volatility
Import replacement happens when entrepreneurs identify goods currently sourced from elsewhere and start producing them locally, not because tariffs artificially advantage them but because they’ve found a better way to meet local needs. Over time, this drives specialisation, innovation, and eventually new exports.
Jacobs believed this bottom-up process was the real engine of economic resilience. And she was right. In an era marked by pandemics, war, climate volatility and policy shocks, the ability to adapt quickly and locally is more valuable than ever.
New Zealand saw this first-hand during COVID-19. When global supply chains stalled, we found ourselves unable to access essentials from PPE to packaging, diagnostic swabs to digital hardware. Some firms responded with ingenuity. Others waited. In many cases, local capacity simply wasn’t there.
That experience revealed an uncomfortable truth: trade agreements alone don’t secure economic sovereignty. It depends on the capability to make, adapt and substitute when the system falters.
Some entrepreneurs are already seizing the moment. In the US, for example, founder of activewear brand XX-XY Apparel, Jennifer Sey, argues that trade disruption creates space for ethical, transparent supply chains closer to home. For her, localisation is not just risk management, it’s a business opportunity.
But rebuilding domestic capacity isn’t easy. It takes capital, skilled workers and time. And tariff-based incentives can vanish as quickly as they appear. That’s why the kind of import replacement Jacobs envisioned wasn’t a reactive policy tool but a long-term development strategy.
What import replacement could look like
The same logic applies to New Zealand. We are heavily dependent on imported goods in critical sectors like machinery, pharmaceuticals, digital infrastructure, fertilisers and food processing. If any of those supply chains is disrupted, we’re not just inconvenienced, we’re exposed.
To reduce that vulnerability, we need to think strategically. That might mean developing domestic capacity to manufacture essential health products, or supporting entrepreneurs working on substitutes for imported fertilisers or packaging materials.
It could mean encouraging research institutions to develop substitutes for materials we currently source offshore.
Universities and other research organisations can play a vital role. By collaborating with startups and small or medium-sized businesses, they can accelerate innovation. From prototype to production, tertiary institutions can help translate research into real-world resilience.
Public procurement could also be better leveraged. Government contracts could reward suppliers who help reduce import dependency and build options into our domestic supply chains.
Crucially, we need to map our vulnerabilities. Which imports are critical to key sectors? Where are we reliant on a single country or supplier? What could we produce regionally, if not nationally, with the right insight and capability?
Resilience is not retreat
This is not an argument against trade. New Zealand’s economy depends on it. But if we’ve learned anything from COVID and now from “Liberation Day”, it’s that openness without options is a liability.
Tariffs may make headlines. But they won’t build the necessary capabilities in the US or globally for the next crisis. That kind of economic resilience comes from the patient work of entrepreneurs in building, substituting, learning and adapting, at speed and close to home.
Jacobs reminded us that economies don’t grow stronger by walling themselves off. They grow stronger when they learn to make what they once had to import and, in doing so, discover what the world might want next.
Rod McNaughton, Professor of Entrepreneurship, University of Auckland, Waipapa Taumata Rau This article is republished from The Conversation under a Creative Commons license. Read the original article
5 comments:
I cannot follow his distinction of two types of local manufacture import substitution.When we are acustomed to imports made by very able and industrious workers overseas at slave rates it is going to requre immense reduction in our soft standard of living and ultra generous welfare to replace locally. We did so until the 1970s but the price of cars woud not be tolerated today, nor the compressed income range. The remaining able would go overseas.One of the few products where we have a local advantage is useles te reo which is not imported anyway. However if CO2 production is ever to be taken seriously, local manufacture will have to increase. At least until recently 20,000 ton container ships conveyed empty aluminium beer cans to NZ, home of the smelter.
Kiwis used to make and create, innovate and explore but were killed off over time by policies that had a nullifying affect.
Our agricultural sector still leads the way but is continually hampered.
Success in NZ is not encouraged.
Great to come across a fellow unicorn. It seems most have been happy to watch our logs be shipped off to China & come back as particleboard, & see NZ furniture & products become more premium, or worse, disappear altogether.
More should have been done to protect NZ made and grown industries.
Fisher & Paykel used to be a good news story. Started off as importers then become NZ made for decades, allowing their families to get rich while they employed NZers & kept small towns alive. Then they decided to get greedy, moved manufacturing to slave labour & NZ employees lost their jobs. And now they have become super rich by selling slave labour made expensive products, still trading on the fact they used to have a soul & used to be NZ made. They’re just one example. But for those of us who remember the ‘gentle annie’ ads as kids, they’re the perfect example of where NZ govts have gone wrong.
Question is whether we can get our dignity, wealth & finished products back.
Import replacement is actually quite easy and would benefit NZ immensley. COAL is imported at cost from Indonesia and could be deliverd from NZ. Our jobs our coal our import cost gone.
Ship building for our new ferries .
NZ built the Foveaux strait ferry in the 60's in the North Island.
Just prefabricate the new Cook strait ferry hull in sections and assemble out of the factory . Fit it out when floating.
The hundred plus year old Queenstown steamer the Earnslaw was built in pieces in Dunedin and transported by rail and road and completed at Kingston at the end of lake Wakatipu.
Can I add, what follows will no doubt generate comment in the positive and/or negative.
This Country, New Zealand has always had small production ability, particularly in products that would have been sourced by overseas buyers. Most was made for " home consumption " furniture being a good example. Another would have been Morrison Motor mowers of Hastings.
Go to Bunnings or Mitre 10 and look at the motor mowers, that originate from overseas - mainly China.
Ditto with all hand and power tools.
Our Forestry was extended into more tree, these became and still are a major export commodity, the vast numbers ' felled ' exceeded local demand, so China became the ' go to Country '.
We also faced the increase in purchase costs of raw product, shipping costs to New Zealand, and Unions who decided that higher wages were the ' norm '.
So who wouldn't think of moving offshore.
We are a Country that relied on the Farming sector, England being the ' importer of choice ', both meat & wool, till England joined the Common Market, this gave the Irish " the courage to ensure our butter imports to Europe (and England) took a hit ".
English Woolen Mills faced increasing competition from other sources for wool garments, New Zealand did not have a big enough production line, Norsewear's out put small, focused more on up market product, with selective exports.
We used to have many Car Production domains, Hutt Valley, later Johnsonville - mostly Completely Knocked Down (CKD) units for recreation in New Zealand. A side note, it was a common mantra - " that you did not buy a car made on a Monday or Friday Morning " - let you work that out!
Then the Manufacturers' found it easier to import direct from overseas factory the complete car.
Did we have a Industry to manufacture - no costs being the proactive word.
Our meat industry had to change from shipping whole carcass, lamb to specifically packaged product, one area I can relate to was a German Company buying from two sources, here in New Zealand, the packaging had to be in the German Language - which both Companies complied with - it then became an operation to source quality product to maintain shipping timelines.
The same with beef - America became the go to Country for our boneless beef ( for the hamburgers in the fast food industry - one in particular [no name/no pack drill] and yup Trump's tariff's will have an impact, in America on end product but they will still buy) - again maintaining product source and supply, from the get go and even now being a major ' headache '.
I am not sure if we have any remaining Tannery's, a way back in our past Italy brought most of the processed hides - I would suspect China is now the major importer.
All our shoes are now imported. Go To rebel Sport and have a look see.
Will we have a return to a industrial production base, taking us away from overseas imports - well, we will have to ask the Unions about that.
If you are unsure - go speak to Fisher & Paykel.
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