German firms shift billions from US to China

German companies are shifting a greater share of their overseas investment towards China as fresh data shows a sharp decline in corporate spending in the United States.

A study by the German Economic Institute (IW) found that German businesses increased their investment in China by around one-third during the first half of 2026 compared with the same period a year earlier. The increase amounted to approximately €5.6 billion ($6.5 billion) in additional investment.

In contrast, German direct investment in the United States fell by almost two-thirds to roughly €4.3 billion during the same period.

Economists have linked the contrasting trends to growing trade tensions, uncertainty surrounding US economic policy and higher tariffs introduced under President Donald Trump. The changing trade environment has made it more difficult for companies to assess the risks and costs associated with expanding their operations in the US.

IW economist Juergen Matthes said German businesses faced strong pressure to continue investing in China despite concerns surrounding the country’s economic environment. China remains one of the world’s largest consumer markets and is also an important production base for German companies.

The study noted that German firms are increasingly using the Chinese market to compete with powerful local manufacturers. Operating in a highly competitive environment can push companies to improve products, reduce costs and strengthen their global competitiveness.

Another factor attracting investment is China’s production environment. Analysts have pointed to government subsidies and the relatively weak yuan as factors that can lower production costs and encourage foreign companies to manufacture more goods locally.

The growing investment gap between China and the US has raised concerns in Europe about the long-term consequences for production and employment. Economists warn that continued investment shifts could gradually move manufacturing capacity and associated jobs away from Germany and other European economies.

Some experts have urged the European Union to adopt stronger measures to protect European industries from what they regard as an uneven competitive environment. Possible measures include countervailing tariffs on Chinese goods benefiting from state support.

The latest figures highlight a broader challenge for German businesses as they attempt to balance access to major global markets with geopolitical risks, trade barriers and changing economic policies.