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Donald Trump's security policy document offers a misguided view of the European Union. It claims that unrestrained immigration and what it terms "woke" policies represent an existential threat to the continent's identity. Yet, this perspective is based on a serious misinterpretation of the reality. The actual challenge confronting Europe is not societal but economic and technological backwardness.

The Stark Growth Divide Between the US and Europe

Statistics reveal a stark contrast. Between 2008 and 2023, American economic output grew by 87%, compared to a paltry thirteen and a half percent increase for the European Union. Over this time, European income per person fell from over three-quarters to just half of the US level. Strikingly, even the poorest US state now has a higher per capita income than major EU nations like Italy and France.

Today, roughly half of the global top fifty technology firms are American, while only four are from Europe.

The Technological Deficit: A Critical Problem

This widening economic gap is driven by superior productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The scene of global tech dominance is overwhelmingly US-centric. In the last five decades, hundreds of American startups have grown into enterprises valued at more than $10bn, versus only fourteen in Europe.

This disparity prompts a vital question: In the race for future industries like semiconductors, AI, and quantum computing, where does Europe positioned? Experts widely agree it is largely a two-horse race involving the US and China, with Europe entering at a significant disadvantage.

Underlying Factors of the Continent's Technological Lag

A number of key factors explain this technological divide.

• Financing Ecosystem: The US boasts a much more robust and more dynamic system for financing new ventures. Europe still lacks a genuine unified investment market, which caps the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A US startup can introduce a product under one set of laws to access a consumer base of hundreds of millions. The European Union, despite a larger population, is split among 27 different national systems, creating significant internal barriers.
• Cultural Attitudes: Views on entrepreneurial failure vary greatly. In some EU nations, business failure was historically met with penalties, whereas in the United States, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.

The Road Ahead: Grounds for Hopefulness

In spite of these challenges, there are reasons for optimism. European leaders are increasingly aware of the severe threat and have started to advance serious reform. Notable analyses on European competitiveness and the internal market highlight the need for sweeping reforms.

Given appropriate policies and rule changes, Europe's strengths might enable far greater degrees of business-led breakthroughs.

The continent still possesses considerable strengths: high-quality workforce, top-tier schools and universities, and world-class research institutions. Coupled with a large internal market and high savings rates, these elements could unleash a new wave of venture creation.

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 innovations from other regions.

A Critical Juncture

Europe now stands at a decisive crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". So far, Europe's slide in innovation has been steady. But, if it fails to take decisive action to address its deep-seated problems, today's slow erosion could give way to a rapid and permanent loss of world influence.