German firms shift billions to China as US investment plummets, IW study shows

A study by the German Economic Institute (IW) highlights a striking shift in corporate strategy among German firms, marked by a surge in Chinese investments alongside a steep decline in U.S. outlays.

German companies increased their investment in China by roughly one-third in the first half of 2026 compared to the same period previously, with outlays rising by €5.6 billion ($6.50 billion) more than the previous year.

Conversely, German direct investment in the United States dropped by nearly two-thirds down to about €4.3 billion, a divergence that analysts attribute heavily to growing trade tensions, policy volatility, and tariffs.

Why German firms are shifting focus:

U.S. policy volatility and tariffs implemented under President Donald Trump have introduced profound unpredictability into the North American market, dampening investor confidence and causing companies to pull back.

At the same time, IW economist Juergen Matthes noted that German firms have "little choice" but to keep investing in China to maintain global competitiveness.

Beyond being a crucial consumer market, China acts as a high-pressure testing ground where firms build competitive muscle against fierce local rivals.

Additionally, analysts point out that state subsidies and an undervalued yuan make local production in China artificially inexpensive, further incentivizing firms to expand operations locally.

This trend has sparked concerns among economists regarding the structural shift of production and jobs away from Europe and into China.

However, some experts are calling on the European Union to implement stronger defensive measures, such as countervailing tariffs on Chinese imports, to counter what they describe as an uneven playing field.