Why German FDI into the US Shrank 65 Percent

German companies have sharply reduced their direct investment in the United States. According to calculations by the Institut der deutschen Wirtschaft (IW) based on Bundesbank data, only around €4.3 billion in German direct investment flowed into the world's largest economy in the first half of the year. That represents a 65 percent drop compared with the same period a year earlier and a nearly 80 percent decline compared with the first half of 2024, the last comparable period before Donald Trump returned to the White House.

The retreat is even more striking against the longer-term pattern. In the five years before the pandemic, German companies invested an average of €15.8 billion in the US during the first half alone — almost four times the current level. IW expert Samina Sultan said the trend has continued since the start of Trump's second term in January 2025.

The data cut against the stated logic of US trade policy. Trump has used high tariffs in an attempt to push foreign companies to produce inside the United States, and the EU — including Germany — has been among the main targets. So far, the investment flows are moving in the opposite direction, with German companies slowing their US capital commitments rather than expanding them.

What the Investment Collapse Says About Trump's Tariff Strategy

Trump's Tariff Logic Is Not Working on German Industry

The decline in German direct investment suggests that tariffs are not yet producing the reshoring effect Washington wants. Instead of responding to US trade barriers by building more capacity in the United States, German firms are reducing their exposure. The 65 percent year-on-year drop is not a marginal adjustment; it signals a broad retreat from a market that previously attracted almost four times as much first-half investment.

The 80 Percent Drop Since 2024 Is the More Revealing Number

Comparing the current figure with the first half of 2024 isolates the effect of the new US trade policy. That period predates Trump's return, and the nearly 80 percent fall since then is too large to be explained by ordinary business-cycle swings. It points instead to a policy-driven deterioration in the transatlantic investment climate.

Who Loses When German Capital Stays Home

The retreat creates losses on both sides. US states and suppliers that would have hosted German-funded projects lose potential jobs, orders and tax revenue. German companies lose proximity to a large consumer market and may face higher costs if they later need to rebuild US operations. The figures also give EU policymakers concrete evidence that trade confrontation is weakening economic integration with the United States.

How German Boards and US States Should Read the FDI Retreat

  • German companies weighing US expansion: The latest Bundesbank-based IW figure of €4.3 billion in first-half FDI compares with a pre-pandemic first-half norm of €15.8 billion. That gap should be treated as evidence that the current tariff environment is suppressing, not encouraging, new US capital commitments.
  • US states courting German manufacturers: The 65 percent year-on-year drop points to a thinner pipeline of German-backed projects while the tariff regime remains in place. Existing incentive programs may need to address trade-policy risk, not only wages or logistics costs.
  • For the next data check: The full-year Bundesbank direct-investment series and any revisions to the IW first-half estimate will show whether this is a temporary pause or a structural reallocation of German capital away from the United States.

Risk & Opportunity Assessment

Commercial RiskHighGerman companies committed only €4.3 billion to US direct investment in the first half, down 65 percent year on year and nearly 80 percent from the first half of 2024, pointing to a shrinking US commercial footprint.
Competitive RiskMediumNo named competitors are identified in the IW data, but a broad retreat by German firms leaves room for domestic US producers and other foreign investors to serve the market that German capital is vacating.
Regulatory RiskCriticalTrump's tariff policy is the stated driver of the decline, and the negative trend has continued since the start of his second term in January 2025, leaving German exporters exposed to ongoing US-EU trade measures.
Reputation RiskLowThe story reports an aggregate investment shift rather than a reputational event affecting a named company; no specific firm or reputational damage is identified.
Technology DisruptionLowThe decline is policy- and trade-related, not driven by a technology shift identified in the IW study or the Bundesbank data.
Commercial OpportunityLowThe reported data show shrinking US investment by German firms, and the IW study does not provide evidence of equivalent redirected investment opportunities elsewhere.