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Donald Trump's security policy document presents a misguided view of the European Union. It claims that open-border policies and so-called "progressive" policies represent an existential threat to European civilization. Yet, this perspective rests on a fundamental misreading of the reality. The actual challenge confronting Europe is not societal but technological and economic backwardness.

A Glaring Economic Divide Separating the US and Europe

The data paint a sobering contrast. Between 2008 and 2023, US GDP surged by 87%, compared to a paltry 13.5% increase for the EU. During this period, European income per person fell from over three-quarters to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading European economies like Italy and France.

Today, roughly half of the global 50 largest tech companies are American, while only four are European.

The Technological Shortfall: A Critical Question

This widening economic gap is driven by stronger productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have grown into enterprises valued at more than ten billion dollars, compared with only fourteen in the European continent.

This disparity prompts a pressing issue: In the race for future industries like semiconductors, AI, and quantum computing, what is Europe positioned? Experts widely agree it is largely a contest between two between the US and China, with Europe entering at a significant handicap.

Underlying Factors of the Continent's Innovation Gap

A number of major factors explain this technological divide.

• Venture Capital: The United States has a far deeper and agile network for funding startups. The EU has yet to establish a true capital markets union, a factor that limits the scale of new firms.
• Regulatory Fragmentation: Complex and divided regulation hamper Europe. A American entrepreneur can introduce a service under a single set of laws to access a market of hundreds of millions. The European Union, despite a larger population size, is divided among twenty-seven different national systems, creating huge internal barriers.
• Mindset Differences: Views on entrepreneurial failure differ sharply. In parts of Europe, a startup's collapse was historically met with stigma, whereas in the US, it is often seen as a valuable lesson.
• Military Investment: The US benefits from a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in defense has weakened its ability in breakthrough innovation.

The Road Ahead: Reasons for Hopefulness

Despite these hurdles, there are causes for hope. Policymakers are increasingly aware of the existential challenge and have begun to advance serious reform. Key reports on European competitiveness and the internal market highlight the need for major changes.

With the right incentives and rule changes, Europe's strengths might enable far greater levels of business-led breakthroughs.

The continent retains considerable advantages: high-quality workforce, top-tier schools and universities, and premier research institutions. Coupled with a large internal market and high savings rates, these elements could unleash a new wave of investment and entrepreneurship.

Importantly, even if Europe does not become the leader in creating cutting-edge tech, it can still significantly boost productivity by adopting and adapting innovations from other regions.

A Critical Juncture

The European Union now faces a decisive moment. As the saying goes, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, if it fails to take decisive action to address its structural weaknesses, today's slow erosion could turn into a sudden and irreversible decline in world influence.