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Donald Trump's national security strategy offers a flawed view of the European Union. It claims that open-border policies and so-called "progressive" agendas pose an grave threat to European civilization. However, this perspective is based on a fundamental misinterpretation of the situation. The actual challenge facing Europe is not societal but economic and technological backwardness.

A Glaring Economic Divide Separating the US and Europe

Statistics paint a stark picture. Between 2008 and 2023, American economic output grew by 87%, while a mere 13.5% increase for the EU. Over this period, European income per person fell from 76.5% to just half of the American figure. Remarkably, even the poorest US state now boasts a higher per capita income than several leading EU nations like Italy and France.

Today, about 50% of the world’s top fifty tech companies are American, while a mere four are European.

The Innovation Shortfall: A Critical Question

This widening disparity is driven by stronger efficiency gains in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech leadership is decidedly American. Over the past five decades, hundreds of American startups have grown into companies valued at more than $10bn, versus only fourteen in the European continent.

This disparity raises a pressing question: As the competition for tomorrow's sectors like semiconductors, AI, and quantum computing, where does the EU positioned? Most analysts concede it is largely a two-horse race involving the United States and China, with Europe starting at a clear disadvantage.

Root Causes of the Continent's Technological Lag

A number of major factors account for this innovation chasm.

• Venture Capital: The United States has a much more robust and agile system for financing new ventures. Europe has yet to establish a true capital markets union, a factor that caps the growth potential of emerging companies.
• Regulatory Fragmentation: Complex and divided regulation hinder Europe. A US startup can launch a service under one set of laws to access a consumer base of hundreds of millions. The EU, despite a bigger population, is divided among twenty-seven separate systems, creating significant internal barriers.
• Mindset Differences: Attitudes toward entrepreneurial failure differ sharply. In parts of Europe, a startup's collapse was once met with penalties, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in defense has weakened its ability in breakthrough innovation.

A Path Forward: Reasons for Hopefulness

Despite these hurdles, one can find reasons for optimism. Policymakers are growing more conscious of the existential challenge and have begun to advance serious reform. Key reports on European competitiveness and the internal market point to the necessity of major changes.

With the right policies and rule changes, Europe's strengths could support much higher levels of business-led breakthroughs.

The continent still possesses considerable strengths: skilled workforce, excellent education systems, and world-class labs. Alongside a large internal market and substantial household savings, these elements have the potential to unleash a surge of venture creation.

Importantly, even if Europe does not take the lead in creating cutting-edge tech, it can still dramatically boost economic output by implementing and tailoring advancements from elsewhere.

An Inflection Point

Europe now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. However, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible loss of global economic relevance.