CashNews.co
Trade and investment flows between the US and Germany are entering a new, and much accelerated, phase. So much so that analysts examining data from the German Federal Statistical Office expect the US to eclipse China as the top trading partner of European nations by 2025.1
German companies are rushing to boost capital investments in the US, much more so than in recent years. In 2023, they announced a record US$15.7bn of capital commitments in US projects (total FDI having also risen (see Figure 1), up from US$8.2bn in 2022, drawn by Washington’s generous tax incentives and a robust and stable economic outlook, according to consultancy fDi Markets (reported by the Financial Times in February 2024)2. In contrast, Germany pledged just US$5.9bn to China.
Figure 1: German investment in the US has more than doubled in the last 10 years
Source: 2024 Germany American Business Outlook (US Bureau of Economic Analysis, US Department of Commerce)
German and European companies have been drawn to the Biden administration’s huge stimulus programmes, notably the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CHIPS), which were enacted nearly two years ago and offer more than US$400bn in tax credits, loans and other aid to bolster manufacturing while tackling climate change. Although the subsidies are mainly geared toward US entities, subsidiaries of German and European companies can also benefit.
As a result, German firms announced 185 capital projects in the US during 2023, of which 73 were in the manufacturing sector, fDi said. The data also highlighted how Volkswagen’s Scout Motors electric vehicle (EV) subsidiary led the pack with a US$2bn commitment to build a factory in South Carolina.3 Mercedes-Benz followed suit with a US$1.9bn pledge while e-VAC Magnetics and ZF Friedrichshafen earmarked US$500m each and Merck KGaA US$300m.4
“When you look at the last quarter, the trade relationship between Germany and the US has surpassed China for the first time over the past few years,” says Volker Baer, Chairman of the German American Chamber of Commerce, Inc. (GACC New York), adding that America-bound exports reached US$70bn compared to US$62bn to China. US stimulus aside, a desire by German firms to de-risk from China amid supply-chain risks, while remaining close to key American markets, has also fuelled the trend, according to Baer. He highlights the 2024 Germany American Business Outlook (GABO), which reported how 96% of German companies plan to boost US investments by 2026.5
The US’s low energy prices – at least compared to Europe, where the Russia-Ukraine war has raised costs – is also helping lure a wide range of German and European industrial and machinery firms such as cranes and hydraulics supplier Palfinger, which plans to double its US footprint in coming years.
“The US has had its own inflation issues, but levels are not nearly as high as what we’ve had in Europe,” confirms Paul Maley, Deutsche Bank’s Global Head of Securities Services and Regional Head of Corporate Bank Americas, adding, “This differential has a strong influence in German companies’ investment decisions.”