US Tariffs Force German Firms Defer US Investments Plans

The US government’s tariff policies have had an impact on Germany businesses with as many as 30% companies with investment plans in the US have postponed projects, and 15% have cancelled them altogether, according to a latest survey by Munich-based research institution Freunde des ifo Instituts (ifo instituts).

Investments in Germany are also coming to a standstill due to the tariff policy as 21% were postponing projects, and 8% reported that investments have been cancelled. Companies that were negatively affected by the Trump tariffs in particular are deciding to postpone or cancel investments in Germany.

According to the survey findings, one in three of the industrial companies surveyed expects a shift in global trade relations away from the US, while 17% expect an increase. More than 60% reported negative effects from the US tariffs introduced in January.

The export-oriented sectors such as mechanical engineering (87%) and metal production (68%) were particularly affected. Even companies with US locations were also suffering from the tariffs, more than 80% reported noticeable drawbacks.

ifo trade expert Andreas Baur said that Donald “Trump’s tariffs were profound trade policy shock, and they were forcing companies to reassess global markets and realign investments.

US Market Losing Importance

A third of the companies surveyed expect the US market to become less important. At the same time, around 40% respectively expect growing sales opportunities in the EU single market and on the Indian market; hardly any companies anticipate a decline in trade.

Regarding opinions on the Chinese market, the survey found that only 17% expect it to become less important for their company, while 25% see it becoming increasingly important.

In addition, 59% of the companies expect Chinese providers to increasingly focus on European markets as a result of the US tariffs, which will also up the competitive pressure on German industry. Director of the ifo Center for International Economics Lisandra Flach said that to ensure that German companies can continue to compete internationally in the future, policymakers must ensure reliable framework conditions and facilitate access to new markets.

“The European Union (EU) should quickly ratify the Mercosur agreement, push ahead with further trade agreements, and at the same time dismantle barriers in the single market,” Flach added.

German Companies Vulnerable

According to KPMG, Germany is one of the world’s largest export nations – particularly in the areas of motor vehicles, machinery, chemical products and electrical engineering. Many of these exports traditionally go to the USA. Due to this export-orientated economy and the considerable trade surplus with the USA, Germany is particularly vulnerable to the current changes in customs duties.

The executive order signed by the President Donald Trump, which provides for at least a general minimum import tariff of 10% on all imports into the US, further increases the uncertainties.

The US administration also plans to increase tariffs for countries with high trade surpluses, such as Germany and the EU. The aim of these measures is to address existing trade deficits, create fairer competitive conditions in the US market and reduce dependence on foreign production.

These measures and their partial and temporary suspension and reinstatement are creating major uncertainties for German companies – both in the supply chain and for investments.