German investments in the USA are collapsing: Trump's tariffs are causing unrest!

German investments in the USA are collapsing: Trump's tariffs are causing unrest!

German companies have shown a sharp decline in investment behavior in the USA since US President Donald Trump took office on January 20, 2023. According to the taz Investments in February and March 2023 only amounted to 265 million euros, while an impressive 4.6 billion euros flowed into the American market in the same period last year. This represents a decline of 18 times, primarily due to the uncertainty created by Trump's economic policies.

Another indication of this development is the assessment of the German Economic Institute (IW) in Cologne, which interprets the lack of investment as a sign of general nervousness among German companies. Currently around 10 percent of German exports go to the USA, with the main products being machinery, chemical products and cars. Trump's policy, which relies, among other things, on tariffs, aims to motivate companies to build their factories in the USA and thus create jobs.

Uncertainties slow down investments

However, uncertainty about future tariffs and their potential impact on production costs is having a chilling effect on businesses. Legal framework conditions and fluctuations in taxes and energy prices also contribute to uncertainty. Despite these challenges, some German car manufacturers, such as Audi, have decided to expand their production capacity in the USA. BMW, Mercedes and VW are currently in negotiations with the US administration about possible customs deals.

Foreign trade expert Samina Sultan expects a continuing trend towards declining German investments in the USA in the near future. Many German companies have begun to review their global production structures and move to other countries such as Mexico, Vietnam, India and Thailand, which also act as export markets to the USA.

Expected tariff rates and supply chain adjustments

KPMG officials warn in a report on the impact of U.S. tariffs that if increased tariffs are imposed in 90 days, drastic rates could be expected: Mexico could face a 25% tariff, Vietnam 46%, India 26% and Thailand 36%. In comparison, the tariff for the EU is 20%. The situation is even more dramatic for China, as there is a surcharge of 145%.

These new customs regulations are forcing German companies to thoroughly analyze their supply chains. The relocation of production capacity from countries with high tariffs could lead to the closure of new production facilities, which can lead to write-downs on companies' balance sheets. Companies must prepare for greater localization and regionalization of supply chains in order to be future-proof. For many companies, this means that production facilities have to be set up in the EU for the European market, in Asia for the Asian market and in the USA for the American market.

In the current situation, a careful review and adjustment of global production structures is essential in order to minimize the financial burden of customs claims on parts and intermediate products. These developments show how much international business activity is influenced by political decisions.