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Donald Trump's national security strategy presents a misguided view of Europe. It claims that open-border policies and what it terms "progressive" policies pose an grave threat to the continent's identity. Yet, this argument is based on a fundamental misinterpretation of the reality. The true challenge confronting the EU is not cultural but technological and economic backwardness.

A Glaring Growth Gap Separating Europe and the US

Statistics paint a stark picture. From 2008 and 2023, US GDP surged by eighty-seven percent, compared to a mere 13.5% increase for the European Union. During this time, European income per person dropped from 76.5% to just 50% of the American figure. Strikingly, even Mississippi now has a higher per capita income than several leading European economies like France and Italy.

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

The Innovation Deficit: The Core Problem

This widening disparity is driven by stronger productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The scene of world technology leadership is overwhelmingly US-centric. Over the past five decades, hundreds of American startups have scaled into companies valued at more than $10bn, compared with only fourteen in Europe.

This gap raises a vital issue: As the competition for tomorrow's sectors like semiconductors, AI, and quantum computing, what is Europe positioned? Experts widely agree it is essentially a contest between two involving the US and China, with European nations entering at a significant handicap.

Underlying Factors of the Continent's Innovation Gap

A number of key factors explain this innovation chasm.

• Venture Capital: The United States has a much more robust and more dynamic network for financing new ventures. Europe still lacks a genuine capital markets union, which limits the scale of new firms.
• Regulatory Fragmentation: Excessive and fragmented regulation hinder 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 bigger population size, is split among twenty-seven different national regimes, creating huge internal barriers.
• Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, business failure was historically viewed with stigma, whereas in the US, it is often seen as a valuable lesson.
• Military Investment: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.

The Road Ahead: Reasons for Cautious Optimism

Despite these hurdles, there are reasons for optimism. Policymakers are increasingly aware of the existential challenge and have begun to propose serious reform. Key reports on European competitiveness and the internal market point to the necessity of sweeping changes.

Given appropriate incentives and rule changes, Europe's strengths might enable far greater degrees of commercial innovation.

The continent retains considerable advantages: skilled workforce, excellent education systems, and world-class labs. Alongside a large internal market and substantial household savings, these foundations have the potential to unleash a surge of venture creation.

Importantly, even if the EU does not take the lead in developing next-generation technologies, it can still significantly boost economic output by implementing and tailoring innovations from other regions.

A Critical Juncture

Europe now stands at a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent'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 rapid and permanent decline in global economic relevance.