Can Europe Still Compete With America and China in the Age of AI?

The United States leads in intelligence artificielle, China dominates much of advanced manufacturing, and Europe risks becoming increasingly dependent on both. Competing will take more than good research, regulation and ambitious technology strategies.

Europe has some of the world’s strongest universities, research institutes and engineering companies, yet it has struggled to turn these advantages into successful global technology businesses. American companies dominate cloud computing and much of the AI industry, while China has built a strong position in batteries, robotics and several other advanced technologies. European businesses increasingly rely on technology developed, financed and controlled elsewhere.

This is an unusual article for Exporis. We usually cover technology, marketing and the business decisions companies face. But as a European business, we keep returning to a bigger question: how can Europe compete with the United States and China as artificial intelligence changes the way companies work and economies grow?

AI is already changing software development, manufacturing, customer service and scientific research. The companies that control the technology can influence what it costs, where it is available and how others can use it. European businesses have much to gain from AI, but they could also become increasingly dependent on foreign suppliers whose decisions they cannot influence.

Europe Has a Technology Problem, Not a Research Problem

A recent analysis by the Australian Strategic Policy Institute  looks at how far Europe has fallen behind its main competitors. Its figures show that China leads research in 66 of 74 critical technologies, including batteries, robotics and mobile communications. The United States remains particularly strong in advanced chip design, software platforms and artificial intelligence.

Investment tells a similar story. According to Dealroom, venture-capital investment in 2024 reached $190.2 billion in the United States and $38.5 billion in China, compared with $16.2 billion in the UK, $8.2 billion in Germany and $7.8 billion in France. Swiss start-ups attracted approximately CHF 2.4 billion, according to the Swiss Venture Capital Report. 

Europe produces promising technology companies, but too few secure the money and customers needed to compete internationally. American firms can raise enormous sums to develop AI models, build computing infrastructure and recruit researchers. Chinese businesses benefit from large industrial supply chains, public investment and a domestic market where new products can be manufactured and adopted quickly.

European entrepreneurs find it harder to turn a promising product into a sizeable business. Financing becomes more difficult as companies grow, while differences in national regulations, taxation and business structures make it more expensive to expand across Europe. American competitors generally face fewer such obstacles within their home market. Strong research alone cannot make up for these disadvantages.

America Builds Platforms. China Builds Industries.

The United States has spent decades building a technology industry supported by venture capital, leading universities and large corporate customers. Microsoft, Google, Amazon and Nvidia now hold powerful positions throughout the AI industry, supplying everything from computing hardware and cloud infrastructure to the software businesses use.

Their influence reaches well beyond the American economy. European organisations depend on American providers to store information, run applications, analyse data and, increasingly, develop their own AI services.

China has taken a different approach. Beijing identified industries in which it wanted Chinese businesses to compete and spent years supporting their development through research, infrastructure investment and industrial policy.

Electric-vehicle batteries show how well that approach can work. Chinese companies built large supply chains, expanded manufacturing capacity and improved production methods while many European manufacturers continued to concentrate on established automotive technologies.

Neither approach is without problems. American technology markets are dominated by a small number of companies, while China’s industrial policies can encourage overproduction and costly investment failures. Both countries have nevertheless been more successful than Europe at bringing new technologies into widespread commercial use.

Several leading European industrial companies are developing technology in China for both domestic and international markets. German engineering group Siemens presented 26 products developed in China in March 2026, while France’s Schneider Electric has turned a medium-voltage drive originally designed for Chinese customers into a product for global markets. Swiss engineering group ABB invested $150 million in a robotics factory and research centre in Shanghai, where it develops industrial automation technologies.

All three companies benefit from China’s industrial scale, flexible supply chains and rapid adoption of new technologies. Developing products close to manufacturers and suppliers allows them to test new ideas and bring products to market more quickly. Europe’s problem is that its own markets often cannot offer similar conditions.

Europe Is Still Protecting Too Much of Its Past

Much of Europe’s prosperity comes from industries developed during the previous century, particularly carmaking, machinery and chemicals. These businesses remain major employers and exporters, and governments have spent considerable money and political effort supporting them.

Economists sometimes describe the problem as the mid-tech trap: countries become exceptionally good at improving existing technologies but invest too little in industries that could produce future economic growth.

Germany provides a good example. According to the European Patent Office (EPO), German companies filed 24’684 European patent applications in 2022. Yet information and communication technologies accounted for only 11% of German patent applications, compared with 38% in China, 30% in South Korea and 26% in the United States. Switzerland presents a similar contrast. The EPO ranked it first in Europe for patent applications per capita in 2022, with 9’008 applications, although much of its innovation remains concentrated in established industries such as pharmaceuticals, medical technology and precision engineering.

European governments cannot simply abandon established industries. Entire regions depend on their factories, suppliers and workers. But every decision to support a mature industry also raises questions about how much public money remains available for new technologies.

Artificial intelligence shows the problem clearly. Europe has talented researchers, promising start-ups and businesses eager to adopt AI. It has far fewer companies with the money to build large computing facilities, develop leading AI models and sell them around the world.

Regulation Cannot Replace Competition

Europe has become one of the world’s most active regulators of digital technology. Its Digital Markets Act, Digital Services Act and AI Act seek to protect competition, consumers and fundamental rights.

Rules governing privacy, accountability and personal information are necessary, particularly when AI systems handle confidential data or influence important decisions. But companies also need enough time and money to develop products and find customers, rather than spending too much of both trying to understand and comply with regulatory requirements.

European businesses face another problem that has little to do with digital regulation. Despite the promise of a single market, differences in taxation, employment law, company registration and financing arrangements still make it difficult to expand across national borders.

Mario Draghi, the former president of the European Central Bank, examined these obstacles in his report on European competitiveness. According to the Handelsblatt analysis, the International Monetary Fund estimates that internal barriers within the EU impose costs equivalent to a tariff of around 45%.

For a young technology company, the additional expense can be enough to delay expansion into another European country.

A business established in Paris, Berlin, Warsaw or Tallinn should be able to serve customers throughout the EU without repeatedly changing how it operates to meet different national requirements.

European policymakers have spent years writing common rules for technology companies. Making it easier to do business across the continent deserves at least as much attention.

European Businesses Need Customers As Well As Capital

The shortage of investment receives much of the attention when economists discuss Europe’s technology industry. The gap with the United States is considerable, but money alone will not create successful international companies. They also need customers willing to buy relatively new products.

Governments and established businesses could do more by buying technology from promising European suppliers, particularly in cybersecurity, industrial software, AI and secure cloud services.

Public procurement already plays an important role in defence and infrastructure. Government contracts can give companies the revenue and experience needed to improve their products, prove they work reliably and attract private investors. Similar purchasing decisions could help younger European technology businesses establish themselves.

That is not an argument for buying European products regardless of quality or price. Protecting weak suppliers from competition would do little to improve the continent’s technology industry.

Public institutions and large businesses could instead give promising European companies more opportunities to compete for contracts that established international providers currently dominate.

Access to investment capital remains another problem. A business that has developed a successful product may need hundreds of millions to enter new markets, establish factories or build computing infrastructure. European financial markets often struggle to provide funding on that scale.

Founders who cannot raise the money may sell to larger international groups or move operations to countries where financing is easier to obtain.

Europe Does Not Have To Win Every Technology Race

Recreating Silicon Valley across Europe would be enormously expensive and probably unsuccessful. American technology companies have spent decades building computing infrastructure, raising capital and developing relationships with customers. Europe cannot easily reproduce those advantages.

It has better chances in industries where its engineering skills, scientific research and manufacturing experience already give European companies a strong position.

Industrial AI is one such area. European manufacturers understand production systems, complex machinery and supply chains in considerable detail. Combining that knowledge with AI could produce software that predicts equipment failures, improves quality control, reduces energy consumption and automates factory operations.

Advanced manufacturing, photonics, robotics and specialised semiconductor equipment offer further opportunities. Germany and several other European countries remain leaders in technologies needed to manufacture advanced computing and industrial systems.

European businesses could also develop specialised AI applications for healthcare, finance, manufacturing and public administration. In these markets, understanding how an industry works, what customers need and which regulations apply can matter as much as the size of an AI model.

The aim should be to develop products that customers are willing to buy, rather than competing to announce the largest AI model or the most ambitious national technology programme.

What We Think Europe Should Do Next

From our perspective at Exporis, Europe’s position is frustrating because the continent already has much of what it needs to build a successful technology industry: excellent researchers, skilled engineers, established businesses, wealthy consumers and substantial public and private capital.

Yet too many promising companies struggle to expand beyond their home markets. Meanwhile, large European organisations continue to buy much of their technology from American and Chinese suppliers.

We believe European governments should concentrate on making it easier to start and grow technology businesses. They could start by reducing differences between national markets, improving access to financing for growing companies and giving public institutions more opportunities to buy from new technology providers.

Businesses have a part to play, too. They can develop their own AI skills, work with European suppliers and help improve products that meet their needs. They should also be more willing to test new systems before American or Chinese competitors establish their products as industry standards.

European technology companies must still compete on quality, security, performance and price. Customers should not be expected to buy inferior products simply because they were developed closer to home.

Nor does technological independence require Europe to manufacture everything itself. The United States, China and Europe are closely connected through trade, investment and specialised supply chains. A more realistic goal is to maintain enough expertise and manufacturing capacity in essential technologies so that European companies do not have to rely entirely on foreign providers.

Artificial intelligence makes these decisions more urgent. Businesses are adopting systems that may influence their costs, productivity and competitiveness for years. Suppliers that become part of their daily operations today could prove difficult and expensive to replace later.

Europe has the money, skills and customers to compete in parts of the AI industry. Its success will depend less on announcing new strategies than on whether European companies can develop products, win customers and raise the money to grow.

As a European business, we would like to see more of those products developed here. We would also welcome having more European suppliers to choose from. That would benefit European businesses, whether they develop AI technology or simply need to buy it.