President Donald Trump's new National Security Strategy offers a bleak assessment of Europe, long considered America's most reliable ally. It warns that unchecked immigration and other "woke" policies that Trump administration officials see as a threat could lead to Europe's "erasure as a civilization" within decades.
This argument rests on a fundamental misperception of the current state of Europe. The European Union does indeed face an existential threat, but that threat has little to do with immigration or its cultural policies. Moreover, the proportion of those born elsewhere in the total population of the United States is slightly higher than in Europe.
The real threat to Europe is its economic and technological backwardness. Between 2008 and 2023, gross domestic product in the United States grew by 87 percent, compared with just 13,5 percent in the EU. Over the same period, GDP per capita in the EU fell from 76,5 percent to 50 percent of that of the United States. Even the poorest US state, Mississippi, has a higher per capita income than several leading European economies, including France and Italy, as well as the EU average.
This growing economic gap cannot be explained by demographic trends. It reflects stronger productivity growth in the United States, largely driven by technological innovation and higher total factor productivity. Nearly half of the world’s 50 largest technology companies are American, while only four are European. Over the past five decades, 241 American companies have grown from startups to companies with a market capitalization of at least $10 billion, compared to just 14 European ones.
These trends raise critically important questions: which countries will lead the industries of the future, and how does Europe fit in? The race for technological leadership now spans a wide range of sectors, including artificial intelligence and machine learning, semiconductor design and manufacturing, robotics, quantum computing, fusion energy, financial and defense technologies. Europe enters this race as a clear outsider.
Who is currently the leader in the field of future industries – the US or China – is debatable, but most observers agree that it is essentially a two-way race, with America still holding the advantage in several key areas. Beyond the US and China, innovation is concentrated in countries such as Japan, Taiwan, South Korea, India and Israel. In Europe, by contrast, innovation activity is largely confined to Germany, France, the UK and Switzerland – the latter two not even members of the EU.
It is therefore hardly surprising that, while the US and China dominate the global technological landscape, Europe remains far from the top. And its prospects are far from encouraging, given expectations that a new wave of innovation will cause far greater disruption than anything we have seen in the last half century.
The technology gap between the US and Europe is driven by several factors. First, the US has a much deeper and more dynamic startup funding ecosystem, while Europe still lacks a genuine capital markets union, which limits the scale and speed at which new firms can grow.
Second, Europe is hampered by excessive and fragmented regulation. A US startup can launch a new product under a single regulatory framework and instantly have access to a market of over 330 million consumers. The EU has a population of around 450 million, but remains divided into 27 national regulatory regimes. An analysis by the International Monetary Fund shows that internal market barriers in the EU have the effect of tariffs of around 44 percent on goods and 110 percent on services – far higher than the tariffs imposed by the US on most imported goods.
Third, cultural attitudes toward risk-taking differ dramatically. Until relatively recently, an entrepreneur whose business failed faced criminal liability in some EU member states, such as Italy, while in the US, a tech founder who had never failed was seen as too risk-averse.
Fourth, the US benefits from a deeply integrated academic-military-industrial complex, while Europe's chronic underinvestment in defense weakens its innovative capacity. Technology leaders such as the US, China, Israel, and more recently Ukraine spend heavily on defense, and research in the defense industry sector often results in products that also have civilian applications.
Despite this, many European political leaders continue to view higher defense spending as a choice between security and social welfare programs. In reality, the slapping of U.S. defense spending since the end of World War II has limited the kind of innovation that, if it had occurred, could have generated both greater security and greater social welfare through higher productivity. Paradoxically, preserving the European social model will require greater defense spending, starting with meeting NATO’s newly set target of 3,5 percent of GDP for member states in the future.
If Europe allows its technological lag to continue in the coming decades, it risks prolonged stagnation and continued economic decline compared to the US and China. There are, however, reasons for cautious optimism. Increasingly aware that Europe faces an existential challenge, policymakers have begun to put forward serious reform proposals. The most prominent examples of this are the two 2024 reports on EU competitiveness and the single market prepared by two former Italian prime ministers: the first by Mario Draghi and the second by Enrico Letta.
Europe still has some significant advantages, including high levels of human capital, excellent education systems and world-class research institutes. With the right incentives and regulatory reforms, these capacities could support much higher levels of commercial innovation. A better business environment, Europe's high per capita income, a large internal market and increased savings are factors that could trigger a wave of investment.
Crucially, even if Europe never becomes a leader in cutting-edge technologies, it could still significantly boost productivity by adopting American and Chinese innovations. Many of these technologies are inherently general-purpose, benefiting both pioneers and followers.
All of this places Europe at a watershed. As Ernest Hemingway once observed, bankruptcy comes “gradually, then suddenly.” Europe’s technological decline has been gradual for now. But unless it does something to address its structural weaknesses, what is now a slow erosion could turn into a sudden and irreversible loss of economic importance.
The author is Professor Emeritus of Economics at New York University's Stern School of Business.
Copyright: Project Syndicate, 2025. (prevod: radar.rs)
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