A strategic sector is an industry or economic activity that a state designates as critical to its security, autonomy, or future prosperity, and therefore worthy of policy intervention beyond ordinary market regulation. Common designations include defense, energy, telecommunications, semiconductors, critical minerals, transportation infrastructure, banking, food and agriculture, and increasingly artificial intelligence and biotechnology.
Governments treat these sectors differently from the rest of the economy through several tools:
- Foreign investment screening — e.g., the Committee on Foreign Investment in the United States (CFIUS), the EU FDI Screening Regulation that entered into application in October 2020, and similar regimes in the UK (National Security and Investment Act 2021), France, Germany, and Japan.
- Export controls — such as US restrictions on advanced semiconductor and chip-making equipment exports to China announced in October 2022 and expanded in October 2023.
- Subsidies and industrial policy — including the US CHIPS and Science Act (2022), the EU Chips Act (2023), and "Made in China 2025."
- State ownership or "golden shares" retained in privatized firms.
- Public procurement preferences and local-content rules.
The concept sits at the intersection of economics and security. Liberal trade theory generally opposes sectoral protection as welfare-reducing, but the economic security literature — revived since the COVID-19 supply shocks and Russia's 2022 invasion of Ukraine — argues that concentration of critical inputs (Russian gas, Taiwanese chips, Chinese rare earths) creates coercive leverage that markets do not price.
Critics warn the label is elastic and politically convenient: once an industry is called "strategic," lobbying for subsidies and tariff protection becomes easier, and the national security exception in GATT Article XXI can shield measures from WTO challenge. Determining what genuinely qualifies — chips and uranium, yes; steel, dairy, or social media, more contested — is one of the central debates in contemporary trade and industrial policy.
Example
In 2023, the Italian government invoked its "golden power" rules to impose conditions on Pirelli, citing tires and sensor technology as a strategic sector amid concerns about Chinese shareholder Sinochem's influence.
Frequently asked questions
Each state defines its own list, usually through legislation or executive decree. There is no binding international definition, though FDI-screening laws in the US, EU, UK, and Japan share overlapping categories like defense, dual-use tech, energy, and critical infrastructure.
Keep learning