Strategic Industries

Definition

Strategic industries are sectors of the economy that are deemed critical for a country's national security, economic well-being, or technological advancement. These industries are often targeted for government support and protection due to their importance in maintaining a nation's competitive edge and self-sufficiency.

5 Must Know Facts For Your Next Test

1. Strategic industries are often granted government subsidies, tariffs, or other forms of protection to help them become established and competitive.
2. The identification of strategic industries can vary across countries and time periods, reflecting changing economic and political priorities.
3. Supporters of strategic industry policies argue that they help maintain domestic production capabilities, reduce reliance on foreign suppliers, and foster technological innovation.
4. Critics argue that strategic industry policies can lead to inefficient resource allocation, higher consumer prices, and retaliation from trading partners.
5. Examples of strategic industries include defense, aerospace, semiconductors, biotechnology, and certain manufacturing sectors.

Review Questions

• Explain the infant industry argument and how it relates to the concept of strategic industries.
  • The infant industry argument suggests that new, domestic industries should be temporarily protected from foreign competition until they can become established and competitive on their own. This relates to the concept of strategic industries in that governments may use trade barriers or subsidies to support emerging industries that are deemed critical for the country's long-term economic and technological development. The goal is to nurture these 'infant' industries until they can stand on their own and contribute to the nation's overall competitiveness.
• Describe how the national security argument is used to justify the protection of strategic industries.
  • The national security argument posits that certain industries should be protected to ensure a country's ability to produce critical goods and services necessary for national defense and security. This is particularly relevant for industries like defense, aerospace, and certain manufacturing sectors that are seen as vital for a country's self-sufficiency and ability to respond to geopolitical threats. Governments may restrict imports, provide subsidies, or take other measures to maintain domestic production capabilities in these strategic industries to safeguard national interests.
• Analyze the potential benefits and drawbacks of government policies aimed at supporting strategic industries.
  • The potential benefits of supporting strategic industries include maintaining domestic production capabilities, reducing reliance on foreign suppliers, fostering technological innovation through 'technological spillovers', and strengthening national security. However, critics argue that such policies can lead to inefficient resource allocation, higher consumer prices, and retaliation from trading partners. There is also the risk of governments 'picking winners' and propping up uncompetitive industries. Ultimately, the effectiveness of strategic industry policies depends on careful analysis of the specific industries, the competitive landscape, and the broader economic and geopolitical context.

Related terms

Infant Industry Argument: The argument that new, domestic industries should be protected from foreign competition until they can become established and competitive on their own.

National Security Argument: The argument that certain industries should be protected to ensure a country's ability to produce critical goods and services necessary for national defense and security.

Technological Spillovers: The positive externalities that arise when investment in research and development in one industry leads to advancements that benefit other industries and the economy as a whole.