This op-ed by Ted Tucker, executive director of FTE, originally appeared in National Review Online. You can find the original article here.
President Donald Trump’s reciprocal tariff program is currently under scrutiny by the federal courts, and policymakers worldwide wonder if it will eventually go into effect. Meanwhile, the administration is negotiating a trade deal with the European Union, the United States’ largest trading partner. Because the U.S. does about as much trade with the EU as with China, Japan, and South Korea combined, a trade war would certainly be damaging for both sides. However, President Trump may have been emboldened to threaten 50 percent tariffs on European goods because of a surprising fact: The EU economy is far less imposing today than it has been in recent memory.
In 2008, prior to the Great Recession, the European Union and U.S. economies were roughly the same size. Today, the American economy significantly outpaces Europe’s: As of April 2025, U.S. GDP is almost twice as large. Average European incomes are 27 percent lower than American incomes, while average European wages are 37 percent lower. In general, the U.S. dominates in 21st-century fields like research, technology, finance, and energy.
What accounts for this rapidly growing divergence in economic fortunes? Structural economic factors play a role, as do the differing economic philosophies of the U.S. and of EU member countries. First, consumer spending generally has shifted away from goods and toward services. Since the U.S. sells more services worldwide compared with the EU, our economy is better off. Moreover, the U.S. embraces economic freedom more readily than do EU member states. According to the Fraser Institute’s Economic Freedom of the World 2024 report, which ranks countries based on their size of government, legal system, commitment to trade, regulation, and other factors, the U.S. has the fifth freest economy in the world. By contrast, the average EU nation ranks 33rd.
Hidden in these statistics, however, lies the best explanation for the growing U.S.-EU economic divide: the commitment to entrepreneurship. Why is entrepreneurship important? Simply put, entrepreneurs innovate, hire employees, create wealth, and drive their economy and society forward. Entrepreneurship is the secret sauce — the “killer app,” in tech parlance — of the American economy on which everything else is built.
The list of the world’s largest companies reveals why entrepreneurship matters. Twenty-two of the 50 largest companies are based in the U.S.; the EU has just nine. Many of the most successful — including Amazon, Apple, and Alphabet — were American start-ups founded in the last 30 years. On the other hand, Europe has stopped producing successful start-ups. Volkswagen, Germany’s largest company, was incorporated in 1937. Switzerland’s Vitol dates to 1966. France’s TotalEnergies: 1924. Italy’s Enel: 1962. In fact, a recent European Commission report confirmed that no EU company founded in the past 50 years has a market capitalization of more than $100 billion. Meanwhile, six American companies with a market cap above $1 trillion were founded during this period.
The U.S. is outcompeting the EU in fostering new business creation and entrepreneurship because it provides better conditions for entrepreneurs. Our culture is more tolerant of risk-taking, which is unsurprising given the entrepreneurial nature of our nation’s founding. Our legal system provides more protections for start-ups and small businesses. Our regulatory structures are relatively easy to navigate for someone with a new business idea; launching a new venture is essentially a matter of filing the proper paperwork. Historically, we have also been welcoming to immigrants, who, in general, are highly entrepreneurial.
Organizations such as mine, the Foundation for Teaching Economics (FTE), are essential for preparing the next generation of American entrepreneurs. FTE introduces teachers and students to the principles of economic freedom, helping them understand how it benefits their lives and the nation in general. A new program launching this summer — Entrepreneurship: Economics of Innovation — will prepare high school and middle school educators across the country to teach the fundamental economic concepts that promote the entrepreneurial spirit. Since 1975, more than 30,000 students and teachers have participated in FTE programs.
Entrepreneurship depends on strong institutions that protect property rights, open markets, and the rule of law. All entrepreneurs — from your local day care or gas station proprietor to Silicon Valley venture capitalists — need business certainty to function. Unsound economic policies (including seemingly on-again, off-again tariffs) create uncertainty that is anathema to entrepreneurs. It’s critical that we continue to teach the principles of economic freedom to citizens and policymakers to ensure that the U.S. remains the land of the free and the home of the entrepreneur.
Ted Tucker is the executive director of the Foundation for Teaching Economics (FTE), a nonprofit educational organization that promotes experiential learning and the economic way of thinking. FTE was established in 1975 and operates as a program of The Fund for American Studies.