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Donald Trump's national security strategy offers a misguided assessment of Europe. It claims that open-border policies and so-called "progressive" policies represent an existential risk to European civilization. However, this perspective is based on a fundamental misreading of the reality. The actual challenge confronting the EU is not societal but economic and technological backwardness.

The Stark Economic Gap Between the US and Europe

The data paint a stark picture. Between 2008 and 2023, US GDP grew by 87%, while a mere thirteen and a half percent growth for the EU. During this period, European income per person dropped from 76.5% to just 50% of the American figure. Strikingly, even the poorest US state now boasts a greater average income than several leading EU nations like France and Italy.

Currently, roughly 50% of the world’s 50 largest tech companies are American, while only four are from Europe.

The Innovation Deficit: The Core Problem

The growing disparity stems from superior productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The landscape of world technology leadership is overwhelmingly American. Over the past five decades, 241 US firms have grown into companies valued at over ten billion dollars, compared with just 14 in the European continent.

This disparity raises a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and fusion energy, what is Europe positioned? Experts widely concede it is essentially a contest between two between the United States and China, with European nations entering at a significant disadvantage.

Root Causes of the Continent's Innovation Gap

A number of major factors account for this innovation chasm.

• Financing Ecosystem: The United States has a far deeper and more dynamic network for funding startups. The EU still lacks a true unified investment market, which limits the scale of emerging companies.
• Bureaucratic Hurdles: Excessive and fragmented rules hamper European business. A American entrepreneur can launch a service under one regulatory framework to access a consumer base of hundreds of millions. The EU, despite a larger population size, is divided among 27 separate regimes, creating significant internal barriers.
• Cultural Attitudes: Views on risk-taking differ sharply. In parts of Europe, business failure was once met with penalties, whereas in the US, it is often seen as a valuable lesson.
• Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has weakened its capacity for breakthrough innovation.

A Path Forward: Reasons for Cautious Optimism

Despite these hurdles, one can find causes for hope. Policymakers are growing more conscious of the existential challenge and have started to propose serious reform. Key reports on EU competitiveness and the internal market point to the necessity of major changes.

With the right policies and regulatory reforms, these assets might enable much higher degrees of commercial innovation.

Europe retains significant advantages: skilled human capital, excellent schools and universities, and world-class research institutions. Coupled with a large internal market and high savings rates, these elements could trigger a surge of venture creation.

Importantly, even if the EU does not become the leader in creating next-generation technologies, it can still dramatically increase productivity by implementing and tailoring innovations from elsewhere.

An Inflection Point

The European Union now stands at a decisive crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, the continent's technological decline has been steady. But, without decisive action to tackle its deep-seated problems, today's gradual weakening could give way to a rapid and permanent decline in world influence.