German firms boost China investment as U.S. spending plunges

German companies sharply increased investment in China while slashing spending in the United States during the first half of 2026, according to a study by the German Economic Institute (IW) based on Bundesbank data, underscoring how trade tensions and tariff uncertainty are reshaping corporate strategy across Europe's largest economy.

A Widening Investment Gap

German firms invested roughly €5.6 billion ($6.5 billion) more in China in the first six months of 2026 compared with the same period a year earlier, an increase of about one-third, Reuters reported. The IW study noted that the level of Chinese investment was broadly in line with the average half-year figure recorded between 2020 and 2025, reflecting the continued pull of the Chinese market for German manufacturers.arise+1

At the same time, German direct investment in the United States fell by nearly two-thirds year-on-year to roughly €4.3 billion — the lowest first-half total since 2023. Compared with the same period in 2024, the drop was nearly 80 percent. In the five years before the COVID-19 pandemic, German companies averaged €15.8 billion in first-half U.S. investments, almost four times the 2026 figure.reuters+2

"This continues the downward trend that has been evident since the start of Donald Trump's second term in January 2025," IW researcher Samina Sultan told Reuters.live.euronext+1

China's Pull, America's Uncertainty

The divergence reflects the combined effect of U.S. tariff policy and China's enduring role as both a vast consumer market and a low-cost production base. Juergen Matthes of the IW said German companies had little choice but to maintain their Chinese operations, citing government subsidies, an undervalued yuan, and the need to compete with Chinese manufacturers globally.bolnews+1

"For Germany, this means that production and employment are increasingly moving to China," Matthes said, urging the European Union to impose countervailing tariffs on Chinese imports to address competitive imbalances.arise

Broader Implications for Europe

The data arrives amid a wider recalibration of German trade relationships. China reclaimed its position as Germany's top trading partner in the first half of 2026, with bilateral trade reaching €125.5 billion, according to Germany's Federal Statistical Office. Earlier IW data showed German investment in China rose 55.5 percent in 2025 compared with 2024, a trend that accelerated as U.S. trade-war concerns deepened.reuters+1

Economists warn that the persistent shift could gradually hollow out European manufacturing capacity, moving production and jobs eastward even as Berlin and Brussels debate how aggressively to respond to Chinese industrial policy.bolnews+1