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Donald Trump's national security strategy presents a misguided assessment of Europe. The document asserts that open-border policies and so-called "woke" agendas pose an existential threat to the continent's identity. Yet, this perspective is based on a serious misreading of the reality. The actual danger facing Europe is not societal but economic and technological backwardness.

A Glaring Growth Gap Separating the US and Europe

The data paint a sobering picture. From 2008 and 2023, US GDP surged by 87%, compared to a mere thirteen and a half percent increase for the EU. Over this period, EU GDP per capita fell from over three-quarters to just 50% of the American figure. Remarkably, even the poorest US state now has a greater average income than major European economies like France and Italy.

Today, roughly half of the world’s top fifty technology firms are US-based, while a mere four are European.

The Innovation Deficit: The Core Problem

The growing economic gap is driven by stronger productivity growth in the US, fueled by breakthroughs and better use of resources. The landscape of world technology dominance is decidedly US-centric. In the last five decades, 241 US firms have grown into enterprises valued at more than $10bn, versus only fourteen in the European continent.

This disparity prompts a pressing question: In the race for future industries like semiconductors, AI, and fusion energy, where does the EU stand? Most analysts concede it is essentially a two-horse race involving the US and China, with European nations starting at a significant handicap.

Root Causes of the Continent's Innovation Gap

Several key factors account for this innovation chasm.

• Venture Capital: The US boasts a much more robust and more dynamic system for funding startups. The EU still lacks a true capital markets union, which caps the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented regulation hinder European business. A American entrepreneur can introduce a product under a single regulatory framework to access a market of hundreds of millions. The EU, despite a bigger population size, is divided among 27 separate regimes, creating huge market obstacles.
• Cultural Attitudes: Attitudes toward risk-taking differ sharply. In parts of Europe, business failure was historically met with stigma, whereas in the US, it is often considered a badge of experience.
• Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has weakened its ability in breakthrough innovation.

A Path Forward: Reasons for Hopefulness

In spite of these hurdles, one can find causes for optimism. European leaders are increasingly aware of the existential challenge and have started to propose serious reform. Notable analyses on EU competitiveness and the single market point to the need for major changes.

With the right policies and rule changes, Europe's strengths could support much higher levels of commercial innovation.

The continent still possesses considerable advantages: skilled human capital, excellent schools and universities, and premier labs. Coupled with a vast domestic consumer base and substantial household savings, these foundations could unleash a new wave of venture creation.

Crucially, even if Europe does not take the lead in developing cutting-edge technologies, it can still significantly increase economic output by implementing and tailoring advancements from elsewhere.

An Inflection Point

The European Union now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, Europe's slide in innovation has been steady. However, without decisive action to address its deep-seated problems, today's slow erosion could turn into a sudden and irreversible loss of world influence.