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Donald Trump's national security strategy presents a misguided view of the European Union. It claims that open-border policies and so-called "progressive" policies pose an grave threat to European civilization. Yet, this argument is based on a serious misinterpretation of the reality. The true challenge confronting the EU is not cultural but economic and technological lag.

The Stark Growth Divide Separating the US and Europe

Statistics reveal a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, while a paltry 13.5% growth for the EU. Over this time, EU GDP per capita dropped from over three-quarters to just 50% of the US level. Remarkably, even the poorest US state now boasts a greater average income than several leading European economies like Italy and France.

Currently, about 50% of the global top fifty technology firms are US-based, while a mere four are European.

The Technological Shortfall: A Critical Question

This widening economic gap stems from superior productivity growth in the United States, largely due to technological innovation and higher total factor productivity. The landscape of world technology dominance is decidedly American. In the last fifty years, 241 US firms have scaled into companies valued at over ten billion dollars, versus only fourteen in Europe.

This disparity prompts a pressing question: In the race for future industries like AI, semiconductors, and quantum computing, 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 clear handicap.

Underlying Factors of Europe's Technological Lag

Several major reasons explain this technological divide.

• Financing Ecosystem: The United States has a much more robust and more dynamic system for funding startups. The EU has yet to establish a genuine unified investment market, which caps the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented rules hamper Europe. A US startup can launch a service under a single set of laws to access a market of over 330 million. The EU, despite a larger population, is divided among twenty-seven separate systems, creating huge market obstacles.
• Mindset Differences: Views on risk-taking vary greatly. In some EU nations, a startup's collapse was once met with stigma, whereas in the United States, it is often considered a valuable lesson.
• Military Investment: The US benefits from a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in defense has weakened its ability in breakthrough innovation.

The Road Ahead: Grounds for Cautious Optimism

In spite of these challenges, there are causes for optimism. Policymakers are increasingly aware of the existential challenge and have started to advance serious reform. Key reports on EU competitiveness and the internal market point to the need for sweeping reforms.

Given appropriate incentives and regulatory reforms, Europe's strengths could support much higher levels of commercial innovation.

Europe still possesses significant strengths: high-quality human capital, excellent education systems, and premier research institutions. Coupled with a vast domestic consumer base and high savings rates, these elements could unleash a surge of investment and entrepreneurship.

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

An Inflection Point

The European Union now stands at a decisive crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been steady. But, if it fails to take decisive action to tackle its structural weaknesses, today's slow erosion could give way to a rapid and permanent decline in world influence.