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Donald Trump's national security strategy offers a misguided assessment of Europe. The document asserts that unrestrained immigration and what it terms "woke" agendas pose an existential risk to European civilization. Yet, this perspective rests on a serious misreading of the situation. The true challenge confronting Europe is not societal but economic and technological lag.

The Stark Economic Divide Separating the US and Europe

The data reveal a sobering picture. Between 2008 and 2023, US GDP surged by 87%, while a mere 13.5% growth for the EU. Over this time, EU GDP per capita fell from 76.5% to just half of the US level. Remarkably, even the poorest US state now boasts a higher per capita income than several leading European economies like Italy and France.

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

The Technological Shortfall: A Critical Question

The growing disparity stems from stronger efficiency gains in the United States, largely due to technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly US-centric. In the last fifty years, 241 US firms have grown into enterprises valued at over $10bn, versus only fourteen in the European continent.

This disparity raises a pressing issue: In the race for tomorrow's sectors like semiconductors, AI, and fusion energy, where does Europe positioned? Experts widely agree it is essentially a contest between two between the US and China, with Europe entering at a significant disadvantage.

Root Causes of Europe's Technological Lag

A number of key factors explain this innovation chasm.

• Venture Capital: The US boasts a far deeper and agile system for financing new ventures. Europe has yet to establish a true capital markets union, a factor that caps the growth potential of new firms.
• Bureaucratic Hurdles: Complex and divided regulation hinder Europe. A American entrepreneur can launch a service under one set of laws to access a market of over 330 million. The EU, despite a larger population, is divided among 27 separate regimes, creating significant internal barriers.
• Mindset Differences: Views on risk-taking 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.
• Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in defense has weakened its capacity for pioneering research.

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 existential challenge and have started to advance serious reform. Key reports on EU competitiveness and the single market highlight the need for major reforms.

Given appropriate policies and rule changes, these assets could support much higher degrees of business-led breakthroughs.

Europe retains significant strengths: skilled workforce, excellent education systems, and world-class research institutions. Alongside a vast domestic consumer base and substantial household savings, these foundations have the potential to trigger a new wave of investment and entrepreneurship.

Importantly, even if the EU does not take the lead in developing cutting-edge tech, it can still dramatically boost productivity by adopting and adapting innovations from other regions.

An Inflection Point

Europe now faces a decisive crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, Europe's technological decline has been gradual. However, without bold steps to address its deep-seated problems, today's gradual weakening could turn into a rapid and permanent decline in global economic relevance.