As 2025 draws to a close, the European Union faces a growing economic challenge. Policymakers in Brussels are struggling to counter the negative impacts of the recently struck trade deal with the United States and President Trump’s “Big Beautiful Bill,” a sweeping domestic legislation with significant global economic repercussions. The EU’s comparatively slow response to these developments is fueling investor frustration and prompting a shift of capital away from the bloc.
According to a report published this week by the European Round Table for Industry, leaders of major European industrial companies are “alarmed at the lack of urgency in delivering on Draghi and Letta’s bold reforms to restore the business case for investing in Europe.” This concern is reflected in recent survey data, indicating a significant decline in investment confidence within the EU.
The Impact of US Economic Policy on European Investment
The Trump administration’s blend of supply-side economics and protectionist measures has effectively transformed the need to avoid US tariffs into a powerful incentive for companies to invest directly in the United States. The “Big Beautiful Bill,” signed into law in July, formalized substantial tax breaks and incentives designed to attract investment across the Atlantic. Specifically, the legislation offers 100% bonus depreciation for new machinery and factories, alongside the immediate expensing of domestic research and development (R&D) costs, substantially reducing the financial burden of relocating production and innovation to the US.
Companies have until January 1, 2026, to finalize decisions and potentially benefit retroactively from capital deployed in 2025, but the favorable conditions are expected to persist into the following year. This timeline is accelerating the outflow of investment from Europe.
The EU-US trade deal, agreed to in the same month as the “Big Beautiful Bill,” aimed to de-escalate a transatlantic trade war. However, it imposed a 15% tariff on the majority of the EU’s industrial exports to the US, while largely exempting US-made goods entering the EU market. Furthermore, the EU committed to over €640 billion in US energy investments, more than €500 billion in overall economic investment, and approximately €35 billion in US-made AI chips, all before the end of President Trump’s term. The United States, in turn, made no comparable commitments.
For corporations, the calculation became straightforward: relocate investment to the US to avoid tariffs and capitalize on substantial tax advantages.
The Growing Innovation Gap
The most critical threat to Europe’s future competitiveness lies in the siphoning of R&D investment to the United States. The Trump administration’s incentives are actively pulling core innovation away from the EU. This is particularly evident in rapidly developing sectors like artificial intelligence and healthcare.
Data from the State of AI Report 2025 reveals a stark disparity. In the first three quarters of 2025, private investment in US AI companies exceeded €100 billion, with the US capturing over 80% of global AI funding. In contrast, the entire European Union attracted just under €7 billion. This represents a 15-to-1 funding deficit, a trend recognized by the European Parliament as deeply concerning.
Similarly, the EU’s goal of achieving 20% market share in semiconductor manufacturing by 2030, as outlined in the Chips Act, appears increasingly ambitious given that Europe is currently among the slowest-growing regions in that sector. The EU is also lagging in AI adoption among younger demographics, according to a recent Organisation for Economic Cooperation and Development survey.
Pharmaceutical companies have issued a stark warning to President von der Leyen, stating that without rapid and significant policy changes, pharmaceutical research, development, and manufacturing will likely shift to the US. This fear has already materialized, with Roche committing over €40 billion in US investment over five years, Sanofi pledging €17 billion for US manufacturing expansion through 2030, and AstraZeneca announcing over €40 billion in US investment, including a major research center in Virginia.
Recent agreements, such as the large-scale deal between Eli Lilly and Novo Nordisk to reduce medication prices for Americans and expand US manufacturing capacity (Novo Nordisk committing roughly €8.5 billion), further demonstrate this trend. Novo Nordisk is expected to receive a three-year exemption from US tariffs in exchange.
EU’s Scramble for Deregulation
The pressure from the US is driving a significant shift in the EU’s regulatory approach, with the European Commission now pursuing an aggressive deregulation agenda. In response to a request from the European Council, six “omnibus” simplification proposals have been presented since February, covering areas such as energy, finance, agriculture, technology, defense, and chemicals.
The Digital Omnibus, introduced in November, includes delays to provisions of the AI Act and modifications to the General Data Protection Regulation (GDPR). These initiatives aim to reduce bureaucratic costs and streamline processes for European businesses, hoping to stem the outflow of talent and capital. However, these measures are still subject to legislative scrutiny and facing political backlash from privacy and climate advocates.
An agreement was only recently reached on the first omnibus, highlighting the EU’s continued struggle to offer the immediate financial certainty provided by minimizing US tariffs and benefiting from President Trump’s policies. The data clearly indicates that while the EU debates regulatory changes, investment in innovation is already moving decisively to the United States.
Looking ahead, the EU must accelerate its efforts to improve the business environment and incentivize investment if it hopes to remain competitive. The coming months will be crucial in determining whether Brussels can effectively respond to these challenges and secure Europe’s economic future.
