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Donald Trump's security policy document presents a flawed assessment of the European Union. The document asserts that open-border policies and so-called "progressive" policies represent an grave threat to European civilization. However, this argument is based on a serious misreading of the situation. The actual challenge confronting the EU is not societal but technological and economic lag.

The Stark Growth Gap Separating Europe and the US

The data reveal a sobering picture. Between 2008 and 2023, American economic output grew by eighty-seven percent, while a paltry 13.5% increase for the EU. Over this time, European income per person fell from over three-quarters to just 50% of the American figure. Remarkably, even Mississippi now has a greater average income than several leading EU nations like Italy and France.

Today, about half of the world’s 50 largest technology firms are American, while only four are European.

The Innovation Shortfall: The Core Problem

The growing disparity is driven by superior productivity growth in the United States, largely due to technological innovation and better use of resources. The scene of global tech dominance is overwhelmingly US-centric. Over the past fifty years, hundreds of American startups have scaled into enterprises valued at over $10bn, compared with only fourteen in Europe.

This gap prompts a pressing issue: As the competition for future industries like semiconductors, AI, and quantum computing, where does the EU stand? Most analysts concede it is largely a contest between two between the United States and China, with European nations starting at a significant disadvantage.

Root Causes of Europe's Technological Lag

Several key reasons account for this technological divide.

• Financing Ecosystem: The US boasts a much more robust and more dynamic network for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that limits the growth potential of emerging companies.
• Regulatory Fragmentation: Complex and divided regulation hinder Europe. A American entrepreneur can introduce a service under a single regulatory framework to access a consumer base of over 330 million. The European Union, despite a bigger population, is split among twenty-seven different national regimes, creating huge market obstacles.
• Mindset Differences: Views on entrepreneurial failure differ sharply. In some EU nations, a startup's collapse was historically met with penalties, whereas in the US, it is often seen as a valuable lesson.
• Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's chronic underinvestment in defense has weakened its capacity for pioneering research.

The Road Ahead: Grounds for Cautious Optimism

In spite of these challenges, there are reasons for optimism. Policymakers are increasingly aware of the severe threat and have begun to advance substantial change. Key analyses on European competitiveness and the internal market point to the necessity of major changes.

Given appropriate policies and rule changes, Europe's strengths could support far greater degrees of commercial innovation.

The continent still possesses significant strengths: skilled workforce, excellent schools and universities, and world-class research institutions. Coupled with a large internal market and high savings rates, these foundations could trigger a surge of investment and entrepreneurship.

Importantly, even if the EU does not become the leader in creating cutting-edge tech, it can still dramatically increase productivity by implementing and tailoring innovations from other regions.

An Inflection Point

The European Union now faces a decisive moment. As the saying goes, decline often happens "slowly, then all at once". To date, the continent's slide in innovation has been steady. However, without decisive action to tackle its deep-seated problems, today's slow erosion could give way to a rapid and permanent loss of global economic relevance.