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Donald Trump's security policy document presents a flawed view of the European Union. The document asserts that open-border policies and so-called "woke" policies pose an grave risk to the continent's identity. However, this perspective is based on a serious misreading of the reality. The actual danger confronting Europe is not societal but technological and economic backwardness.

A Glaring Growth Gap Between the US and Europe

The data reveal a stark contrast. From 2008 and 2023, American economic output surged by 87%, compared to a paltry thirteen and a half percent growth for the EU. Over this period, European income per person fell from 76.5% to just half of the American figure. Strikingly, even Mississippi now boasts a greater average income than several leading European economies like Italy and France.

Today, about half of the world’s 50 largest tech companies are US-based, while a mere four are European.

The Innovation Deficit: A Critical Problem

This widening disparity stems from superior productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The scene of global tech leadership is overwhelmingly US-centric. In the last five decades, 241 US firms have grown into enterprises valued at more than ten billion dollars, compared with only fourteen in the European continent.

This gap prompts a pressing issue: In the race for future industries like AI, semiconductors, and fusion energy, where does the EU positioned? Most analysts agree it is essentially a two-horse race involving the US and China, with European nations entering at a significant disadvantage.

Root Causes of the Continent's Innovation Gap

Several major factors account for this technological divide.

• Financing Ecosystem: The United States has a much more robust and more dynamic network for financing new ventures. The EU has yet to establish a genuine capital markets union, which limits the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. A American entrepreneur can introduce a product under one set of laws to access a market of hundreds of millions. The European Union, despite a larger population size, is divided among 27 different national regimes, creating huge internal barriers.
• Mindset Differences: Attitudes toward risk-taking vary greatly. In some EU nations, a startup's collapse was historically met with penalties, whereas in the US, it is often seen as a badge of experience.
• Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has eroded its ability in pioneering research.

A Path Forward: Reasons for Hopefulness

In spite of these challenges, there are reasons for optimism. European leaders are growing more conscious of the existential challenge and have begun to propose substantial change. Notable reports on European competitiveness and the single market highlight the need for sweeping changes.

With the right policies and regulatory reforms, Europe's strengths might enable far greater levels of business-led breakthroughs.

The continent still possesses considerable advantages: high-quality human capital, excellent schools and universities, and world-class research institutions. Alongside a large internal market and substantial household savings, these foundations have the potential to trigger a new wave of investment and entrepreneurship.

Crucially, even if the EU does not take the lead in creating cutting-edge technologies, it can still dramatically increase productivity by implementing and tailoring innovations from other regions.

An Inflection Point

The European Union now faces a decisive crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been gradual. But, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could give way to a rapid and permanent decline in world influence.