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Donald Trump's security policy document presents a flawed assessment of the European Union. It claims that unrestrained immigration and so-called "progressive" policies pose an existential risk to the continent's identity. Yet, this perspective is based on a serious misreading of the situation. The true danger facing the EU is not societal but technological and economic backwardness.

A Glaring Economic Gap Separating Europe and the US

The data reveal a stark contrast. Between 2008 and 2023, American economic output grew by eighty-seven percent, compared to a paltry thirteen and a half percent growth for the European Union. During this period, European income per person dropped from over three-quarters to just half of the US level. Strikingly, even the poorest US state now has a higher per capita income than several leading European economies like France and Italy.

Today, roughly 50% of the world’s 50 largest tech companies are US-based, while only four are from Europe.

The Innovation Shortfall: The Core Problem

The growing economic gap stems from superior efficiency gains in the US, largely due to breakthroughs and higher total factor productivity. The scene of global tech leadership is overwhelmingly US-centric. Over the past five decades, 241 US firms have grown into companies valued at over $10bn, versus just 14 in the European continent.

This gap prompts a vital question: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, what is Europe positioned? Most analysts agree it is essentially a contest between two involving the US and China, with European nations starting at a significant handicap.

Root Causes of the Continent's Technological Lag

A number of major factors explain this technological divide.

• Financing Ecosystem: The United States has a much more robust and more dynamic network for financing new ventures. Europe has yet to establish a genuine unified investment market, a factor that limits the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A US startup can launch a service under one set of laws to access a market of hundreds of millions. The EU, despite a bigger population size, is split among 27 separate regimes, creating significant internal barriers.
• Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, a startup's collapse was historically met with stigma, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: The US benefits from a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has weakened its ability in pioneering research.

The Road Ahead: Grounds for Hopefulness

In spite of these challenges, there are reasons for optimism. European leaders are growing more conscious of the existential challenge and have started to advance serious reform. Key reports on EU competitiveness and the internal market point to the necessity of major reforms.

With the right incentives and rule changes, Europe's strengths might enable far greater degrees of commercial innovation.

The continent still possesses significant strengths: high-quality human capital, excellent schools and universities, and premier labs. Alongside a vast domestic consumer base and substantial household savings, these foundations have the potential to unleash a surge of investment and entrepreneurship.

Importantly, even if the EU does not become the leader in creating next-generation technologies, it can still significantly boost productivity by adopting and adapting innovations from other regions.

An Inflection Point

The European Union now stands at a decisive crossroads. As the saying goes, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been steady. But, without decisive action to tackle its structural weaknesses, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.