For decades, Europe built its economic strength on the assumption that the broadest possible trade, dispersed supply chains and access to the cheapest global producers increased the wealth of all participants in the system. The pandemic showed that dependence on foreign suppliers can bring a factory to a standstill, Russia’s war against Ukraine exposed the risks of dependence on imported energy, and the rivalry between the United States and China has meant that semiconductors, artificial intelligence, critical raw materials, data and technologies are increasingly being treated as elements of national power rather than merely products traded on the market.
The biggest change has taken place in the way risk itself is defined. For years, the fundamental question was whether a European company could buy a given product more cheaply abroad than in Europe. Today, a second question is increasingly being asked: what will happen to the European economy if supplies are suddenly restricted, if an exporting country uses its advantage to exert political pressure, or if a global crisis causes everyone to seek the same product at the same time? In the EU’s economic security strategy, the main risks identified include supply chain resilience, technology security, protection of critical infrastructure and the possibility of using economic dependencies as a tool of pressure.
In December 2025, the European Commission went a step further and announced more targeted action in six high risk areas. These include supply chain resilience and reducing strategic dependencies, foreign investments that strengthen economic security, the defence and space industries and other high risk sectors, maintaining an advantage in critical technologies, protecting sensitive information and data, and safeguarding critical infrastructure. At the same time, the EU has announced that it will use existing instruments in a more strategic manner rather than creating a completely separate system for every type of threat.
This is important because it represents a change in the way industrial decisions are made. If a given sector is recognised as strategic, the state no longer has to limit itself to creating favourable conditions for doing business. It can begin to actively shape the structure of the market through public procurement, requirements concerning local production, foreign investment screening, research funding, state aid, export restrictions, joint purchasing or support for the construction of production capacity. In practice, this means moving away from a policy in which the market primarily determines where production takes place towards a model in which, in certain industries, the state also begins to ask whether a given production capacity must exist in Europe regardless of whether the product can be bought more cheaply elsewhere in the short term.
The first sector is already essentially decided: semiconductors
If one has to identify a sector that will continue to be covered by strategic industrial policy, semiconductors are at the very top of the list. The reason is simple, but its consequences are enormous. Modern cars, industrial equipment, servers, defence systems, medical devices, phones and telecommunications infrastructure all require electronic components, while the most advanced chips are also the foundation for the development of artificial intelligence. A lack of access to a particular type of semiconductor can therefore halt production across many completely different industries.
The EU had already identified four groups of technologies as critical: semiconductors, artificial intelligence, quantum technologies and biotechnology. In June 2026, the Commission presented another package concerning technological sovereignty, covering, among other things, the development of European capabilities in semiconductors, artificial intelligence, cloud computing and open source software. The Commission explicitly states that the security of supplies of advanced chips is important for AI, defence, healthcare, space, robotics, secure communications, drones and autonomous vehicles.
This means that policy towards semiconductors will probably extend far beyond traditional subsidies for factories. The entire chain will matter, from chip design through wafer production and packaging to materials, manufacturing equipment, design software and engineering expertise. Europe’s problem is not only that fewer of the most advanced chips are produced on the continent than in Asia. Equally important is dependence on foreign technologies at successive stages of the value chain. If Europe wants to reduce this risk, it has to build capabilities in several places simultaneously, even if some of them are economically more expensive than imports.
This sector makes it particularly clear that economic security changes the calculation of profitability. A semiconductor factory may be more expensive to operate in Europe than in Asia, but for the state that cost is increasingly being compared not only with the price of an imported chip, but also with the cost of losing supplies during a crisis. This is a completely different way of calculating the profitability of an investment. In certain sectors, production capacity is beginning to be treated as a kind of insurance policy.
The second candidate is artificial intelligence, but here it is about more than algorithms
AI will be another area in which European industrial policy increasingly links the economy with security. This is not only about creating European language models. Much more important is the entire physical system required for AI to function, including data centres, advanced processors, cloud infrastructure, networks, electricity, cooling systems and access to data.
This is precisely why, in 2026, the Commission began linking AI policy with policies concerning semiconductors and cloud computing. European digital sovereignty would be very limited without its own computing infrastructure. If the most important models and applications used by European industry operate on infrastructure controlled by companies from outside Europe, while the key processors also come from abroad, European control over regulation alone does not provide full control over the technological foundation of the economy.
This is where energy enters industrial policy. A data centre needs not only servers, but also enormous and stable electrical capacity. If Europe wants to develop its own AI capabilities, it will have to expand its energy system, grids and digital infrastructure at the same time. This means that at a certain point, industrial policy concerning AI ceases to be purely technology policy and becomes policy concerning energy, real estate, transmission grids, subsea cables, data security and the semiconductor industry.
It can therefore be expected that, in the coming years, the strategic treatment of AI will cover not only research and development, but also the location of data centres, access to computing and energy capacity, European cloud services, communications infrastructure and the technologies needed to secure these systems. The EU has already declared that it will increase investment in supercomputers, semiconductors, AI, quantum technologies, genomics and space.
Critical raw materials may be more important than the factories themselves
Another sector, or rather an entire group of sectors, will be critical raw materials. The pandemic showed that it is possible to have a factory in Europe and still be completely dependent on supplies from a single country. War and trade tensions, meanwhile, showed that access to raw materials can become an element of political pressure. If one country controls the extraction or processing of a material needed for batteries, permanent magnets, electronics, energy systems or defence, its advantage does not end with the raw materials market itself.
The European Critical Raw Materials Act has already established targets for increasing European extraction, processing and recycling capabilities and reducing dependence on a single supplier. The EU aims, among other things, for 10 percent of annual demand for strategic raw materials to come from extraction within the EU by 2030, 40 percent from processing and 25 percent from recycling, while ensuring that no more than 65 percent of annual demand for a given strategic raw material at the relevant stage of processing comes from a single third country.
In December 2025, the Commission launched RESourceEU, which is intended to reduce dependencies in areas including batteries, rare earth metals and defence related raw materials. The plan includes joint purchasing, demand aggregation, offtake agreements, strategic stocks and financing for projects that increase alternative sources of supply. The Commission said that EUR 3 billion would be mobilised over the following 12 months for projects capable of rapidly increasing security of supply.
This points to a very important direction for future policy. Europe will not attempt to extract everything domestically, because that would be economically and geologically unrealistic. Instead, it will seek to control a larger part of the chain, diversify suppliers and maintain alternative sources in the event of a crisis. In this sense, strategic importance will belong not only to mines, but also to refineries, processing plants, recycling and technologies that make it possible to replace materials in short supply.
Defence is no longer a separate sector of the economy
The most decisive change is taking place in defence, because the war in Ukraine has shown how quickly an army can consume stocks of ammunition, drones, missiles and spare parts. Europe has therefore begun to treat production capabilities as an element of its own security. The issue is no longer only how much money states spend on defence, but also where factories are located, who controls the technologies, how long production can be maintained and whether European industry can increase output during a crisis.
In March 2025, the European Council identified air and missile defence, artillery, missiles and ammunition, drones and counter drone systems, military mobility, cybersecurity, artificial intelligence, electronic warfare, space and the protection of critical infrastructure as priorities, among others. The subsequently adopted SAFE programme created the possibility of providing up to EUR 150 billion in loans for joint procurement in the area of security and defence.
This may have consequences far beyond arms manufacturers. The development of the defence industry creates demand for electronics, optics, engines, specialised materials, chemicals, energy, software, satellites and transport services. Companies that previously did not consider themselves part of the defence sector may become elements of the European security supply chain. For this reason, future industrial policy may increasingly encompass companies on the basis of dual use, meaning products used for both civilian and military purposes.
It is in defence that the preference for European production will be easiest to justify even when imports are cheaper. A state may accept a higher cost if, in return, it receives a guarantee of product availability, control over technology and the ability to rapidly increase production. This mechanism may subsequently spread into other strategic sectors, although the scale of such intervention will depend on the specific risk involved.
Energy is returning as a strategic sector
After the experience with Russian gas, it is difficult to expect energy to once again be treated solely as an ordinary commodity. European energy policy is already subordinated to security of supply, diversification and infrastructure resilience. Increasing importance will be attached not only to energy sources, but also to grids, storage facilities, cross border connections, nuclear technologies, equipment for renewable energy and the digital security of energy systems.
At the same time, a very important problem is emerging. Europe can reduce its dependence on imported fossil fuels while simultaneously increasing its dependence on imported components for electricity generation and distribution. If turbines, photovoltaic modules, batteries, transformers, cables, grid components and control equipment are largely produced outside Europe, a change in technology does not necessarily mean full independence. The risk simply shifts from one element of the chain to another.
This is why further support for European production of energy technologies can be expected. The EU’s Net Zero Industry Act provides that, by 2030, EU manufacturing capacity for strategic net zero technologies should approach 40 percent of annual deployment needs. The Clean Industrial Deal simultaneously covers steel, metals, chemicals and clean technologies, because the Commission treats them as elements of a single industrial system.
In the future, this may mean increasingly explicit preferences for European suppliers in public procurement and support programmes. The Commission has already proposed requirements concerning European origin and low carbon production in selected strategic sectors, as well as the possibility of applying conditions to large foreign investments in areas such as electric vehicles, batteries, photovoltaics and critical raw materials.
Chemicals may become one of the most important tests
The chemical sector is less visible in public debate than semiconductors or AI, but from the perspective of economic security it may be even more fundamental. Chemicals supply materials used throughout almost the entire economy, from agriculture and construction to electronics, pharmaceuticals, automotive manufacturing and defence. The Commission even describes it as an industry of industries, noting that chemical products are present in more than 96 percent of manufactured industrial goods.
Europe’s problem is already visible in the data on production capacity. The Commission estimates that, compared with 2021, the EU has lost at least around 15 percent of its steam cracking capacity and around 9 percent of its ammonia production capacity. At the same time, no new steam cracker has been built in Europe for around 30 years, while the average age of these facilities is approximately 47 years. This is not merely a problem concerning the profitability of several factories. If basic chemical facilities disappear, subsequent plants in the chain lose local suppliers of raw materials and intermediate products.
The Commission has already prepared a plan for the chemical sector, covering, among other things, the Critical Chemical Alliance, measures concerning energy and raw materials, support for innovation and trade instruments. (European Commission, “Plan for stronger EU chemical industry”) If cost pressures continue, chemicals may be one of the sectors in which industrial policy increasingly begins to serve a function of economic security. Europe can import a finished product, but it cannot always safely become dependent on imports of a basic raw material that sits at the beginning of hundreds of other supply chains.
Pharmaceuticals may return to Europe through the most vulnerable links rather than through entire production chains
The pandemic revealed another problem that may return to the agenda. The objective is not for Europe to produce every medicine from beginning to end. Such a model would be costly and unnecessary. The problem concerns active pharmaceutical ingredients, essential medicines, medical components and products whose shortage could quickly affect the functioning of the healthcare system.
In pharmaceuticals, the strategic criterion will probably be different from that applied to steel or semiconductors. The aim will not be to maximise the share of European production across the entire market, but to secure a defined list of products and production capabilities. A state may decide that it is worthwhile to maintain a local factory producing antibiotics or active pharmaceutical ingredients even if the cost of production is higher than in Asia. The security calculation takes the cost of shortages into account, rather than only the price of the product under normal conditions.
This could lead to a system of strategic stocks, long term purchasing agreements and European requirements concerning supply diversification. In a sense, this would be a return to the logic known from strategic reserves, but applied to a much broader group of industrial products. Everything does not have to be produced in Europe. What is necessary is to know which products cannot safely be lost and how much time is needed to restore supplies.
Food, water and fertilisers may enter the same category
Another area that may gain strategic importance is agriculture, together with the production of fertilisers and inputs needed to maintain food production. Here, dependencies are more complex because food security does not depend only on how much food Europe produces. It also depends on access to fertilisers, energy, gas, feed, crop protection products, machinery, spare parts and water.
The case of nitrogen fertilisers is particularly important because their production is closely linked to the price of gas. If Europe loses competitiveness in ammonia production, it can increase fertiliser imports, but in doing so it transfers the risk to an external supply chain. If the global market is disrupted at the same time, agriculture may feel the effects very quickly. For this reason, industrial policy towards chemicals may have direct implications for food security.
The same may apply to water. As data centres, the semiconductor industry, chemicals and battery production develop, access to water with appropriate characteristics becomes increasingly important. Some technologies require large quantities of process water, and its availability may constrain investment locations just as strongly as energy. In the future, industrial resilience may therefore be assessed not only in terms of energy and raw materials, but also access to water resources.
Europe will not nationalise the economy. It will change the rules of the game
The biggest mistake, however, would be to portray this change as the simple end of globalisation. The European Union still needs trade, imports of raw materials and foreign investment. Its economy is too large and too open to produce everything independently. The Commission itself emphasises that the objective of economic security policy is not to close the market, but to reduce risks arising from excessive dependencies while maintaining an open economy with greater resilience.
What will change is the threshold of tolerance for dependencies. If Europe imports a product that can easily be replaced by another supplier, the risk is small. If one country controls most of the global supply of a product needed simultaneously for energy, defence, electronics and the automotive industry, the situation is different. In documents concerning economic security, the Commission points, among other things, to situations in which 60 percent or more of EU supply is controlled by a single third country, especially when a given product is systemically important to multiple sectors or can be used as a tool of pressure.
This mechanism will probably determine which sectors are covered by subsequent instruments. It is not enough for an industry to be large. It must also be difficult to replace, connected to many other sectors, vulnerable to disruption and important to Europe’s technological or defence position. This is why not every factory will be strategic, but some seemingly ordinary plants may be considered critical if it turns out that they supply one of the few materials required for the functioning of the entire economy.
The next wave of industrial policy may look completely different from the first
If the EU’s current actions are treated as a map of future policy, several sectors can be identified that will face particularly strong pressure from Member States and the Commission in the coming years. The first group consists of semiconductors, AI, cloud computing, quantum technologies and cybersecurity, because they concern control over technologies that are increasingly becoming infrastructure for the entire economy. The second group consists of energy, grids and energy technologies, because electrification of industry and the maintenance of competitiveness cannot take place without them. The third includes critical raw materials, chemicals, batteries and industrial materials, because these are located at the beginning of many production chains.
The fourth group will be connected with defence, space and dual use technologies. Here, the boundary between civilian and military industry will become increasingly less distinct, because drones, AI, satellites, electronics, cybersecurity and advanced materials have applications on both sides. The fifth group may include pharmaceuticals, medical devices and selected agricultural and chemical products, where the risk does not consist of losing technological advantage but of a shortage of an essential product in a crisis situation.
There is another group that may be less visible, but whose importance will grow. It is the infrastructure without which all the other sectors cease to function, namely electricity grids, telecommunications, data centres, subsea cables, ports, railways, payment systems and digital infrastructure. The Council of the EU is already pointing to the need to increase the resilience of critical infrastructure, while Member States are drawing attention, among other things, to the security of subsea and digital connections.
This may be the most important change of the entire decade. A state will not have to own a particular factory to consider a sector strategic. It may regard access to infrastructure that enables hundreds of companies to operate as strategic. In such a model, a transformer, a cable, a server facility, a raw materials refinery, a chemical plant or a chip factory may be treated as an element of a single economic security system.
Europe will have to answer a more difficult question than “What should we produce at home?”
The biggest problem, however, will not be identifying strategic sectors themselves. Much more difficult will be determining how much production capacity Europe should actually maintain and how much it is prepared to pay for it. If every potential risk is treated as an argument for locating production in the EU, industrial policy will become extremely costly. If, on the other hand, governments are too cautious and leave all decisions to the market, Europe may once again discover its dependence only when supplies are interrupted.
Future policy will therefore probably be based on selection. Europe will try to identify areas where dependence is genuinely dangerous and then create minimum production capabilities, alternative sources of supply or strategic stocks. In other sectors, it will continue to rely on global trade. Such a model is much more realistic than attempting to recreate the entire industrial base on the continent.
The way foreign investment is assessed will also change. The Commission is already proposing conditions for some large investments from outside the EU in strategic sectors. In the case of companies controlling more than 40 percent of global production capacity in certain areas, investments worth at least EUR 100 million may be subject to requirements concerning job creation, knowledge transfer, real value creation in the EU and local participation in production. This shows that Europe does not want to give up foreign capital, but it will become increasingly reluctant to accept investments that increase its dependence rather than reduce it.
In practice, this means the emergence of a new criterion for economic policy. For decades, the question was whether an investment would increase GDP, employment and exports. Increasingly, it will also be necessary to ask whether it increases the resilience of the economy. A factory may be profitable and create jobs, but if it simultaneously makes Europe dependent on a single foreign technology supplier, its strategic significance may look completely different. Conversely, an investment that is not the cheapest way of producing something may be justified if it creates a capability needed in a crisis situation.
This way of thinking will shape the next wave of European industrial policy. Not every factory will become strategic, but an increasing number of sectors will be assessed through the lens of what would happen to the economy if their supplies suddenly disappeared. Semiconductors, AI, energy, grids, critical raw materials, chemicals, defence and selected areas of pharmaceuticals are already part of this process. The next stage will probably concern those elements of the economy that until now appeared to be ordinary infrastructure or ordinary industry, but which, after the experience of the pandemic, war and great power rivalry, have proved to be essential for a state to retain the ability to act independently.
Current EU policy provides strong grounds for such a projection. The Commission identifies six high risk areas while simultaneously developing specific instruments concerning raw materials, semiconductors, AI, clean technology industries, chemicals and defence.
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