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Donald Trump's national security strategy offers a misguided assessment of Europe. The document asserts that open-border policies and so-called "progressive" agendas pose an grave threat to European civilization. However, this argument rests on a serious misreading of the situation. The true danger confronting the EU is not societal but economic and technological lag.

The Stark Economic Divide Between Europe and the US

The data reveal a sobering contrast. Between 2008 and 2023, US GDP surged by 87%, while a mere thirteen and a half percent growth for the European Union. During this time, EU GDP per capita dropped from over three-quarters to just half of the American figure. Strikingly, even the poorest US state now has a higher per capita income than major European economies like Italy and France.

Today, roughly 50% of the global 50 largest technology firms are American, while only four are European.

The Innovation Deficit: A Critical Question

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 decidedly US-centric. In the last five decades, 241 US firms have grown into enterprises valued at over ten billion dollars, versus only fourteen in Europe.

This gap prompts a vital question: As the competition for tomorrow's sectors like AI, semiconductors, and fusion energy, where does the EU stand? Experts widely concede it is largely a contest between two involving the United States and China, with Europe entering at a clear disadvantage.

Root Causes of Europe's Innovation Gap

A number of major reasons account for this innovation chasm.

• Venture Capital: The United States has a much more robust and agile system for financing new ventures. The EU has yet to establish a true capital markets union, which caps the growth potential of new firms.
• Regulatory Fragmentation: Complex and divided regulation hamper Europe. A US startup can launch a service under a single set of laws to access a consumer base of over 330 million. The EU, despite a larger population size, is divided among 27 different national regimes, creating huge market obstacles.
• Mindset Differences: Attitudes toward entrepreneurial failure differ sharply. In parts of Europe, business failure was historically met with penalties, whereas in the United States, it is often seen as a badge of experience.
• Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its ability in pioneering research.

A Path Forward: Grounds for Cautious Optimism

Despite these hurdles, one can find reasons for hope. Policymakers are growing more conscious of the severe threat and have begun to propose serious reform. Key analyses on EU competitiveness and the internal market highlight the need for major reforms.

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

Europe still possesses considerable strengths: high-quality workforce, top-tier schools and universities, and world-class labs. Alongside a large internal market and substantial household savings, these elements could trigger a surge of investment and entrepreneurship.

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

A Critical Juncture

Europe now stands at a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, without decisive action to tackle its deep-seated problems, today's slow erosion could give way to a sudden and irreversible loss of world influence.