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Donald Trump's security policy document offers a misguided view of the European Union. It claims that open-border policies and so-called "woke" agendas pose an existential risk to the continent's identity. However, this argument is based on a serious misreading of the situation. The true danger confronting the EU is not cultural but technological and economic lag.

A Glaring Growth Gap Separating Europe and the US

The data reveal a stark picture. From 2008 and 2023, US GDP grew by 87%, compared to a mere thirteen and a half percent increase for the European Union. During this time, European income per person dropped from over three-quarters to just half of the US level. Remarkably, even Mississippi now boasts a greater average income than major European economies like Italy and France.

Currently, roughly 50% of the world’s 50 largest tech companies are US-based, while only four are from Europe.

The Innovation Deficit: The Core Question

The growing disparity stems from stronger efficiency gains in the United States, largely due to technological innovation and better use of resources. The scene of world technology dominance is overwhelmingly US-centric. Over the past five decades, 241 US firms have grown into companies valued at more than $10bn, versus just 14 in Europe.

This disparity prompts a vital issue: In the race for future industries like AI, semiconductors, and fusion energy, what is Europe positioned? Most analysts agree it is essentially a two-horse race between the US and China, with European nations starting at a significant disadvantage.

Root Causes of the Continent's Technological Lag

Several key reasons explain this innovation chasm.

• Venture Capital: The United States has a much more robust and agile system for funding startups. Europe has yet to establish a genuine capital markets union, which caps the scale of emerging companies.
• Bureaucratic Hurdles: Excessive and fragmented regulation hinder Europe. A US startup can launch a product under a single regulatory framework to access a market of hundreds of millions. The EU, despite a larger population size, is divided among 27 separate regimes, creating significant internal barriers.
• Cultural Attitudes: Attitudes toward risk-taking differ sharply. In some EU nations, business failure was historically viewed with stigma, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. The continent's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.

A Path Forward: Grounds for Cautious Optimism

In spite of these challenges, one can find causes for hope. European leaders are growing more conscious of the severe threat and have begun to propose serious reform. Notable analyses on European competitiveness and the single market point to the necessity of major reforms.

With the right policies and regulatory reforms, Europe's strengths might enable much higher degrees of business-led breakthroughs.

The continent still possesses significant strengths: skilled workforce, top-tier schools and universities, and premier labs. Alongside a large internal market and substantial household savings, these elements could trigger a new wave of venture creation.

Importantly, even if Europe does not take the lead in creating cutting-edge tech, it can still significantly increase productivity by implementing and tailoring innovations from other regions.

A Critical Juncture

Europe now stands at a critical crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. But, if it fails to take decisive action to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible decline in global economic relevance.