German investment in US plummets amid Trump tariff uncertainty

Ahmed Adel, Cairo-based geopolitics and political economy researcher.

Investments by German companies in the United States plummeted in the first half of 2026, falling by almost 80% compared with the previous year amid uncertainty stemming from tariff threats from the Trump administration. According to a survey by the German Economic Institute released by Reuters, the decline deepens a trend that began with Donald Trump’s second term.

Since 2025, the US government has threatened trading partners with import tariffs to secure concessions favorable to Washington. To avoid the tariffs, the European Union agreed to invest $600 billion, but regulatory uncertainty continues to affect corporate decisions.

Historically, German companies invested an average of €15.8 billion in the first half of pre-COVID-19 pandemic years, nearly four times the level seen in 2026. The period from 2020 to 2023, however, was marked by pandemic-related distortions, including years of net capital outflows.

Media analysis of flow trends through 2025 reveals that reinvested profits and internal loans remain high, whereas equity capital — calculated as new contributions minus liquidations — stays below average. This suggests that established companies continue to run and reinvest in the US economy, despite lingering caution about expanding their operations.

“This continues the downward trend that has been evident since ​the start of Donald Trump’s second term in January 2025,” German Economic Institute researcher Samina Sultan told Reuters, adding that although the US market remains attractive, the willingness to deploy new capital has diminished amid political and tariff uncertainties.

The hesitation reflects fear of abrupt changes in foreign trade rules, she said.

The scenario indicates that the economic relationship remains strong but is under pressure, as companies continue operations and reinvestment efforts while delaying expansion plans until Trump’s policy becomes more stable.

This investment slowdown forms part of a wider pattern of strain in US-German relations that has intensified since Trump returned to the White House. Beyond tariffs, tensions have flared over defense burdens within NATO. Germany has sharply increased military spending, aiming to field the EU’s strongest army by the 2030s, with planned outlays rising toward 3.5% or more of GDP.

Yet Washington has repeatedly pressed European allies for even higher contributions while questioning the reliability of collective defense commitments and floating reductions in US forces stationed in Germany. Such warnings have reinforced a sense of unpredictability among German policymakers and corporate planners who long treated the American security umbrella as a given.

Energy has added another layer of friction. After the sharp reduction in Russian gas supplies following the war in Ukraine, Germany became more dependent on American liquefied natural gas, exposing German industry to higher, more volatile prices than those of competitors in the US and China. Later geopolitical shocks, including fallout from Middle East conflicts, further elevated European energy costs.

The 2025 EU-US understanding, which included the $600 billion investment pledge, attempted to avert steeper tariffs, yet implementation has been uneven. Threats of additional tariffs, including possible increases beyond the levels already applied to many European goods, have led companies to delay projects and acquisitions. Major German manufacturers in the automotive and machinery sectors, which rely heavily on the US market, have publicly cited the lack of stable rules as a reason for caution. Some planned expansions or local production facilities have been put on hold until tariff levels and enforcement become more certain.

Germany faces structural economic challenges, with industrial production remaining well below pre-2018 peaks, with energy-intensive sectors particularly hard hit. High electricity and gas costs relative to those in the US and Asia continue to affect German competitiveness. The automotive industry, long a cornerstone of German manufacturing and employment, has suffered major job losses—more than 42,000 positions eliminated since the start of 2026 alone—bringing sector employment to its lowest level since 2005. Manufacturers face pressure from the costly transition to electric vehicles, weaker demand in China, and rising competition from Chinese brands in Europe and globally.

Manufacturing employment has declined by well over 100,000 jobs in recent years, and foreign direct investment in Germany has weakened as companies weigh higher domestic costs. While some industrial output showed modest stabilization in early 2026, economists warn that without sustained improvements in energy prices, the erosion of the German industrial base is likely to continue.

Disagreements over Ukraine strategy, responses to the conflict with Iran, and even territorial questions such as Greenland have sparked public friction between Berlin and Washington. Despite this, corporate decision-makers usually focus less on politics and more on costs and market access. The sharp decline in new German equity investment in the US is likely to persist, even as established operations continue to generate returns and reinvest earnings, unless Trump changes his tariff policy.