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The US economy is way stronger than Europe’s – Why?

TL;DR

  • The U.S. economy is growing much faster than Europe’s, making it one-third larger and increasingly dominant in technology, energy, and capital markets.
  • The lack of top-ranking universities, dwindling semiconductor production, and higher energy costs hinder the region’s competitiveness.

The scales of economic power and dynamism have tipped overwhelmingly in favor of the United States, leaving Europe grappling with a widening gap.

This imbalance is significantly affecting relative living standards and Europe’s pursuit of “strategic autonomy” as it grows more reliant on the U.S for technology, energy, capital, and military protection.

America’s meteoric rise: A tale of two economies

Rewind to 2008, the American and European economies were playing on a level field. However, the trajectory of economic fortunes for these regions took a divergent turn following the global financial crisis.

As of 2022, America’s economy has surged to $25tn, a stark contrast to the combined economic worth of the EU and the UK, which stands at $19.8 trillion.

The U.S. economy now towers over Europe’s by nearly one-third and is over 50% larger when compared to the EU without the UK. Behind these jolting statistics lies a narrative of an underperforming the region, which trails behind sector by sector.

Europe’s technology landscape is dwarfed by U.S. giants such as Amazon, Microsoft, and Apple, with seven of the world’s largest tech firms, by market capitalization, being American. The continent has only two representatives in the top 20, ASML and SAP.

Europe’s technological and industrial lag

Europe’s weak technological and industrial standing becomes more pronounced when you consider its lack of top-ranking universities fueling tech startups and the dwindling production of semiconductors.

Europe’s share of global semiconductor production has plummeted from 44% in 1990 to a mere 9% today, trailing the U.S.’s 12%. Moreover, the U.S.’s dominance extends to the pipeline of semiconductor plants expected to become operational by 2025.

Even in the wake of ambitious industrial policies designed to invigorate chip manufacturers and electric vehicle producers, Europe faces considerable challenges.

The U.S., buoyed by the dollar’s status as the world’s reserve currency, can finance its ambitions with relative ease. Conversely, EU, with a significantly smaller budget and only a recent foray into issuing common debt, faces an uphill battle.

Private capital, more abundant in the U.S., further widens the economic divide. The scarcity of substantial pension funds in Europe, which lend depth to the U.S. capital markets, increases the union’s dependency on U.S. capital markets.

Europe’s energy predicament is another factor contributing to this disparity. America’s shale revolution positions it as the world’s largest producer of oil and gas, while energy prices in the region continue to skyrocket.

European industries, grappling with energy costs three or four times higher than their American counterparts, face an imminent threat of factory closures.

Europe does have a few feathers in its cap. The sheer size of the EU single market has forced global companies to adopt EU regulations, a phenomenon known as the “Brussels effect.”

It also commands leadership in “lifestyle” industries, attracting nearly two-thirds of the world’s tourist arrivals and dominating the luxury goods market.

However, these victories seem almost Pyrrhic in the face of Europe’s ongoing struggle to compete with the U.S. in economic prowess. Its relative comfort may be inhibiting a sense of urgency required to reverse this decline.

As it stands, the U.S. economy is not just surpassing Europe’s – it’s setting the global pace.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Jai Hamid

Jai Hamid is a passionate writer with a keen interest in blockchain technology, the global economy, and literature. She dedicates most of her time to exploring the transformative potential of crypto and the dynamics of worldwide economic trends.

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