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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 "woke" policies represent an existential threat to European civilization. However, this perspective is based on a fundamental misreading of the reality. The true danger confronting the EU is not societal but economic and technological backwardness.

The Stark Growth Divide Between the US and Europe

The data paint a stark picture. From 2008 and 2023, American economic output grew by 87%, while a mere 13.5% increase for the EU. During this period, EU GDP per capita dropped from 76.5% to just half of the American figure. Strikingly, even the poorest US state now boasts a higher per capita income than major EU nations like France and Italy.

Currently, about 50% of the global top fifty technology firms are US-based, while a mere four are from Europe.

The Technological Shortfall: A Critical Problem

The growing disparity stems from superior productivity growth in the United States, largely due to breakthroughs and higher total factor productivity. The landscape of world technology dominance is overwhelmingly American. Over the past five decades, 241 US firms have scaled into companies valued at more than ten billion dollars, compared with only fourteen in the European continent.

This disparity raises a pressing question: In the race for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Most analysts agree it is essentially a contest between two involving the US and China, with European nations starting at a clear disadvantage.

Root Causes of the Continent's Technological Lag

Several key reasons account for this innovation chasm.

• Venture Capital: The US boasts a much more robust and more dynamic network for financing new ventures. The EU has yet to establish a genuine unified investment market, a factor that caps the scale of new firms.
• Regulatory Fragmentation: Complex and divided regulation hinder European business. A American entrepreneur can launch a product under one set of laws to access a consumer base of hundreds of millions. The European Union, despite a larger population size, is split among 27 separate regimes, creating significant market obstacles.
• Cultural Attitudes: Views on risk-taking differ sharply. In parts of Europe, a startup's collapse was historically met with stigma, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The United States enjoys a tightly woven innovation pipeline linking defense and academia. Europe's long-term lack of spending in defense has weakened its capacity for pioneering research.

A Path Forward: Reasons for Cautious Optimism

Despite these challenges, there are reasons for optimism. European leaders are growing more conscious of the existential challenge and have started to advance substantial change. Notable reports on European competitiveness and the single market highlight the need for sweeping changes.

Given appropriate policies and regulatory reforms, these assets could support much higher levels of business-led breakthroughs.

The continent still possesses considerable advantages: skilled workforce, excellent education systems, and premier labs. Alongside a large internal market and substantial household savings, these elements could trigger a surge of investment and entrepreneurship.

Crucially, even if Europe does not take the lead in creating cutting-edge technologies, it can still significantly boost economic output by adopting and adapting advancements from other regions.

An Inflection Point

Europe now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, without decisive action to tackle its structural weaknesses, today's slow erosion could give way to a sudden and irreversible loss of global economic relevance.