Fears that higher energy prices and the lure of the USA’s Inflation Reduction Act, with its generous subsidies for ‘clean technology’ manufacturing, would shift domestic German industrial investment across the Atlantic appear to have been well-founded, as an article from the Financial Times has explained.

Last year, German companies announced US$15.7 billion in planned capital expenditure in the US, close to double what it was in 2022 (and roughly double what it was annually between 2018-2022). This accounted for around 15% of total overseas commitments, with Siemens Energy, BASF, Volkswagen, Mercedes-Benz and Merck KGaA amongst the investors. The trend seems set to continue, too, with a survey of subsidiaries of German companies in the US earlier this year finding that 96% intend to expand their investments by 2026.

This follows a study last year which revealed that one-third of German companies planned to boost production abroad rather than domestically, which was a doubling from the previous year. BASF’s North American chief executive Michael Heinz told the FT that the investment environment in the US is “very attractive”, and that “Europe is increasingly suffering from overregulation, slow and bureaucratic approval procedures and, above all, high costs for most production factors … energy-intensive industries in Europe will likely shrink rather than grow in the medium term.”

Other factors cited in the article are a desire to diversify manufacturing sites, particularly in the wake of the increasingly fraught shipping passage through the Suez Canal and increasing geopolitical tensions. A recent report by the German Chamber of Industry and Commerce found that by 2025, the USA will surpass China as Germany’s top trading destination, a sign of the changes at play.

While it seems likely to strengthen German companies internationally, and is a sign of the domestic success of the Inflation Reduction Act, the trend will no doubt be a concern for the German government.