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Donald Trump's national security strategy offers a misguided assessment of the European Union. The document asserts that open-border policies and so-called "woke" policies represent an grave risk to European civilization. However, this perspective rests on a fundamental misreading of the reality. The actual danger facing the EU is not societal but economic and technological lag.

A Glaring Growth Gap Separating Europe and the US

The data reveal a sobering contrast. From 2008 and 2023, American economic output surged by eighty-seven percent, while a paltry thirteen and a half percent increase for the European Union. During this period, European income per person dropped from over three-quarters to just half of the American figure. Strikingly, even Mississippi now has a greater average income than major EU nations like France and Italy.

Currently, about half of the global top fifty technology firms are US-based, while a mere four are European.

The Innovation Deficit: A Critical Question

This widening economic gap is driven by superior productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The landscape of global tech dominance is decidedly US-centric. In the last five decades, 241 US firms have scaled into enterprises valued at more than $10bn, versus just 14 in the European continent.

This disparity raises a pressing issue: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Experts widely agree it is largely a two-horse race between the United States and China, with Europe entering at a clear disadvantage.

Root Causes of the Continent's Innovation Gap

Several key reasons explain this technological divide.

• Financing Ecosystem: The US boasts a much more robust and more dynamic system for funding startups. Europe still lacks a genuine unified investment market, which caps the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A US startup can introduce a product under one set of laws to access a market of over 330 million. The EU, despite a bigger population size, is divided among 27 different national systems, creating significant internal barriers.
• Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, business failure was once viewed with penalties, whereas in the United States, it is often considered a badge of experience.
• Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has eroded its capacity for pioneering research.

The Road Ahead: Grounds for Hopefulness

Despite these hurdles, one can find reasons for optimism. European leaders are increasingly aware of the severe threat and have begun to propose serious reform. Notable reports on EU competitiveness and the single market point to the need for sweeping changes.

With the right incentives and regulatory reforms, these assets might enable far greater degrees of business-led breakthroughs.

The continent retains significant strengths: high-quality human capital, excellent schools and universities, and premier labs. Coupled with a large internal market and substantial household savings, these elements have the potential to trigger a new wave of venture creation.

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

A Critical Juncture

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