These gaps are highly likely to widen over the next two decades, with the U.S. and China consolidating their technological and industrial leads in key areas, while Europe struggles to overcome its structural challenges.

The U.S. will maintain its lead in high-end innovation, while China will solidify its dominance in manufacturing and supply chains. Europe, though a regulatory leader, will risk falling further behind as it grapples with fragmentation and a lack of scaled-up industrial policy.

Widening Gaps in AI, Quantum, and Semiconductors

The trends in these foundational technologies suggest a growing divide, with each region playing to a different set of strengths.

AI and Quantum Computing

• The U.S. and China: The U.S. will likely remain the leader in frontier AI models and cutting-edge research, driven by its massive private-sector investment and a competitive venture capital ecosystem. Companies like NVIDIA, Google, and OpenAI are at the forefront of this, and the U.S. government will continue to fund foundational research through agencies like DARPA. China, meanwhile, will continue to close the performance gap and will likely dominate in AI-enabled military applications and AI-powered surveillance, thanks to its state-led strategy and vast data resources. China's total public spending on these technologies is projected to far outpace that of the U.S. and Europe combined, solidifying its lead in a race seen as a matter of national security.

• Europe: Europe has a strong base of researchers but struggles with a disconnect between academic excellence and commercialization. Without the scale of capital and a unified market seen in the U.S. and China, Europe's promising startups risk being acquired by American or Chinese giants. This will lead to a continued "brain drain" and a reliance on foreign-developed AI models. While Europe's AI Act will set global standards, this "regulatory superpower" role will be insufficient to build and control its own AI infrastructure.

Semiconductors

• The U.S. and China: The U.S. will likely maintain its lead in chip design and R&D, an area it has dominated for decades. The CHIPS Act is a clear signal that the U.S. intends to re-shore a significant portion of its manufacturing, though this will take decades to fully mature. However, China is pouring billions into its own semiconductor industry, and while it will struggle to catch the U.S. in cutting-edge fabrication, it will likely achieve dominance in legacy chips and mature fabrication processes. This is a critical point, as these chips are essential for everything from automobiles to consumer electronics.

• Europe: Europe has a strong position in semiconductor manufacturing equipment and niche areas like automotive chips. However, its goal of doubling its share of global chip production by 2030 remains a monumental challenge. The sheer capital investment required to build a modern fabrication plant is staggering, and Europe's fragmented approach and a more cautious industrial policy will make it difficult to compete with the U.S. and China's massive state subsidies. Europe risks remaining a net importer of semiconductors.

Widening Gaps in Clean Energy Technology

China's state-backed model has already created a near-unassailable lead in solar, wind, and EV battery technology, a gap that is only set to widen.

• China: China is set to cement its position as the global renewables leader, with projections indicating it will account for 60% of the expansion in global renewable capacity to 2030. This dominance extends across the entire supply chain, from raw material processing to manufacturing. China's control over critical minerals like rare earths and its sheer manufacturing scale make it a dominant force. The U.S. and Europe's new industrial policies, while ambitious, are playing catch-up to a head start that has been decades in the making.

• The U.S. and Europe: Both the U.S. and Europe are making significant investments in clean energy, but their efforts are more about building a domestic supply chain for self-sufficiency than about competing for global dominance. The U.S.'s Inflation Reduction Act (IRA) provides powerful incentives for domestic manufacturing, but it will take years to build out the industrial base needed to compete on price and scale with China. Europe, meanwhile, is aiming for a more sustainable approach to its clean energy transition, but it is still heavily reliant on Chinese imports for key components.

Widening Gaps in Military Technology

The divergence in military technology reflects the core strategic priorities of each region, with a growing gap between U.S.-Chinese competition and Europe's struggle for collective defense.

• The U.S. and China: The U.S. will maintain its lead in high-end, complex weapon systems such as stealth aircraft and aircraft carriers, but China will continue to excel in asymmetric warfare technologies like hypersonic missiles and drone swarms. China's state-led "military-civil fusion" strategy allows it to integrate civilian technology, particularly AI, into military applications at an unprecedented pace. The U.S. will remain ahead in overall military R&D, but China's rapid advancements mean the technological gap in key areas is narrowing.

• Europe: Europe's fragmented defense industry will continue to be a major obstacle. The lack of a unified procurement policy leads to costly and inefficient projects. Europe’s significant increase in defense spending since 2022 has largely been spent on purchasing U.S. military equipment rather than building its own domestic champions. While initiatives like PESCO and the EDF are steps toward greater interoperability, they are unlikely to close the gap with the U.S. and China, leaving Europe dependent on its allies for high-end military capabilities.

In conclusion, these gaps are not only likely to persist but to widen. The U.S. will solidify its lead in innovative, high-value tech, while China will dominate in manufacturing and strategically-directed technologies. Europe, as it stands, will likely be a significant consumer and a regulator of others' technology, rather than a primary producer.

This video discusses the economic challenges facing Europe and the U.S., and whether China can surpass the U.S. in the AI race. Is Europe Doomed in the AI Race? Can China Ever Surpass the US? | Professor Antonio Fatas | Ep1