German companies sharply reduced new direct investment in the United States during the first half of 2026, with flows falling to €4.3 billion ($5 billion) — the lowest first-half total since 2023 — as persistent uncertainty over Trump administration trade policy continues to weigh on transatlantic business ties.

The Scale of the Decline

According to calculations by the German Economic Institute (IW), based on Deutsche Bundesbank data, first-half German direct investment in the US fell by nearly two-thirds year-on-year. Measured against the same period in 2024 — the last comparable stretch before Trump's second term began — the decline is even starker, down almost 80%. For context, first-half German investment in the US averaged €15.8 billion in the five years before the Covid-19 pandemic, meaning the current figure sits at roughly a third of that historical norm, even accounting for pandemic-era distortions the IW says complicate direct comparisons to 2020-2023.

"A Downward Trend Since Trump Returned to Office"

IW researcher Samina Sultan told Reuters the latest figures "continue the downward trend that has been evident since the start of Donald Trump's second term in January 2025." Since returning to office, Trump has repeatedly threatened trading partners with import tariffs as leverage to secure concessions favorable to Washington — a pattern of unpredictability that has made long-horizon capital commitments harder for foreign firms to justify. Sultan's framing suggests this isn't a one-off blip tied to a single policy announcement, but a structural shift in how German companies are pricing US market risk into their investment decisions.

Existing Operations Keep Running — New Projects Get Shelved

Notably, the pullback isn't a wholesale retreat from the US market. The IW analysis found that German companies already established in America continued reinvesting profits from existing operations at relatively stable levels, and direct-investment loans remained active. What's dried up specifically is new equity investment — the capital tied to new factories, expansions, and acquisitions. Analysts note this distinction matters: maintaining an existing US operation is a fundamentally different bet than committing years of capital to a new project, and it's the latter that's proven most sensitive to tariff and regulatory uncertainty. Nearly 30% of planned projects have reportedly been postponed, reflecting a broad wait-and-see posture among German firms rather than outright abandonment of the US market.

The Trade Policy Backdrop

The uncertainty has been compounded by a shifting trade framework throughout 2025 and 2026. A 2025 US-EU trade agreement established a 15% tariff structure for much of EU merchandise entering the US, alongside a pledge for European companies to invest an additional $600 billion in strategic US sectors — though the European Commission later clarified that figure reflected private-company intentions rather than a binding government commitment. Policy shifted again in 2026: a July 23 presidential memorandum introduced a new Section 301 tariff framework covering dozens of trading partners, under which EU products with a most-favored-nation tariff below 10% received an additional Section 301 tariff bringing the combined rate up to 10%, while goods already at or above that threshold received no further increase.

The $600 Billion Pledge Hasn't Materialized as Capital Flow

The sharp decline in actual German investment stands in stark contrast to the headline $600 billion European investment pledge attached to last year's US-EU trade framework. The gap illustrates a recurring pattern in trade diplomacy: large, politically significant commitments announced at the government level don't necessarily translate into equivalent flows of new private capital, particularly when the underlying policy environment continues to shift.

Which Sectors Are Most Affected

Industry analysts point to Germany's automotive, chemical, and mechanical engineering sectors as among those most affected, with many firms pausing or rethinking planned US expansions as they wait for greater clarity on tariff rates and customs regulations. The hesitation is also unfolding against a backdrop of domestic pressures in Germany itself — including high energy costs, labor shortages, and slow industrial growth — forcing German multinationals into a broader balancing act between staying close to the American consumer market and managing rising costs on both sides of the Atlantic.

What to Watch Next

Markets are likely to look to upcoming quarterly earnings and management commentary from major German industrial firms for further signals on how companies are recalibrating their US strategies. Given that investment decisions of this scale are typically based on multi-year expectations about market stability, any further shifts in US tariff policy — up or down — could meaningfully move the needle on whether German capital returns to the US market or continues seeking opportunities elsewhere. For the underlying data, see the German Economic Institute (IW).

With new capital commitments now running at a fraction of pre-pandemic norms, the data suggests German businesses have settled into a genuinely cautious posture toward the US market — one that's likely to persist as long as trade policy continues shifting under the current administration.