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Donald Trump's national security strategy presents a flawed assessment of Europe. It claims that open-border policies and what it terms "progressive" policies represent an existential risk to the continent's identity. Yet, this perspective is based on a serious misreading of the reality. The true danger facing the EU is not societal but economic and technological backwardness.

A Glaring Economic Gap Between the US and Europe

Statistics paint a stark picture. Between 2008 and 2023, American economic output grew by 87%, compared to a paltry 13.5% increase for the European Union. Over this period, EU GDP per capita dropped from 76.5% to just half of the US level. Strikingly, even Mississippi now boasts a higher per capita income than several leading EU nations like Italy and France.

Today, about half of the global 50 largest tech companies are American, while a mere four are European.

The Technological Deficit: The Core Question

This widening economic gap stems from superior efficiency gains in the US, fueled by technological innovation and higher total factor productivity. The landscape of global tech leadership is overwhelmingly US-centric. In the last fifty years, 241 US firms have scaled into enterprises valued at more than ten billion dollars, versus just 14 in the European continent.

This gap prompts a vital issue: In the race for future industries like AI, semiconductors, and fusion energy, where does Europe positioned? Most analysts concede it is essentially a two-horse race between the United States and China, with Europe starting at a clear disadvantage.

Underlying Factors of Europe's Innovation Gap

A number of key factors account for this innovation chasm.

• Venture Capital: The United States has a much more robust and more dynamic network for funding startups. Europe still lacks a true capital markets union, which limits the growth potential of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A US startup can launch a product under one set of laws to access a market of hundreds of millions. The EU, despite a larger population, is divided among twenty-seven different national systems, creating significant internal barriers.
• Mindset Differences: Views on entrepreneurial failure differ sharply. In parts of Europe, a startup's collapse was once 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 capacity for breakthrough innovation.

A Path Forward: Reasons for Cautious Optimism

In spite of these hurdles, there are reasons for hope. European leaders are growing more conscious of the severe threat and have begun to propose serious reform. Key reports on European competitiveness and the single market highlight the need for sweeping reforms.

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, top-tier schools and universities, and premier labs. Alongside a large internal market and high savings rates, these elements have the potential to unleash a surge of venture creation.

Importantly, even if the EU does not become the leader in developing next-generation tech, it can still dramatically boost productivity by adopting and adapting advancements from elsewhere.

A Critical Juncture

Europe now faces a critical crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, Europe's slide in innovation has been gradual. However, if it fails to take bold steps to address its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible decline in global economic relevance.