Donald Trump's national security strategy presents a flawed view of the European Union. The document asserts that open-border policies and so-called "woke" policies pose an grave threat to European civilization. Yet, this perspective rests on a fundamental misinterpretation of the reality. The actual danger facing Europe is not cultural but technological and economic backwardness.
A Glaring Growth Gap Between the US and Europe
The data paint a sobering contrast. From 2008 and 2023, US GDP grew by 87%, while a mere thirteen and a half percent increase for the EU. Over this period, European income per person dropped from over three-quarters to just half of the American figure. Strikingly, even Mississippi now has a greater average income than several leading European economies like France and Italy.
Today, about half of the world’s top fifty technology firms are US-based, while a mere four are from Europe.
The Technological Shortfall: The Core Problem
The growing economic gap is driven by stronger efficiency gains in the US, largely due to breakthroughs and higher total factor productivity. The scene of global tech leadership is decidedly US-centric. Over the past five decades, 241 US firms have scaled into companies valued at over $10bn, compared with just 14 in the European continent.
This gap prompts a pressing issue: In the race for tomorrow's sectors like AI, semiconductors, and fusion energy, what is Europe positioned? Experts widely agree it is essentially a contest between two involving the United States and China, with Europe entering at a significant handicap.
Underlying Factors of the Continent's Technological Lag
Several key factors account for this innovation chasm.
- Venture Capital: The United States has a much more robust and agile system for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that caps the growth potential of new firms.
- Regulatory Fragmentation: Complex and divided rules hinder European business. A US startup can introduce a service under a single regulatory framework to access a market of hundreds of millions. The EU, despite a bigger population size, is split among twenty-seven separate systems, creating huge market obstacles.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was once viewed with stigma, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's long-term lack of spending in defense has eroded its capacity for breakthrough innovation.
The Road Ahead: Grounds for Hopefulness
In spite of these challenges, there are causes for hope. Policymakers are growing more conscious of the existential challenge and have begun to advance serious reform. Notable reports on European competitiveness and the single market highlight the need for major reforms.
Given appropriate incentives and rule changes, Europe's strengths might enable much higher degrees of business-led breakthroughs.
Europe still possesses significant strengths: skilled human capital, 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 surge of investment and entrepreneurship.
Crucially, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly increase productivity by adopting and adapting innovations from elsewhere.
A Critical Juncture
The European Union now faces a decisive crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's slide in innovation has been steady. However, without decisive action to address its structural weaknesses, today's gradual weakening could turn into a rapid and permanent loss of world influence.
