Ifo Survey: US Tariff Policy Is Slowing German Industry Investment

Entrenched Tariff Burden and High Expectations Toward the US

Many companies are passing on the higher costs to their US customers: 34 percent of the firms surveyed shift the additional tariff costs fully onto American buyers through higher prices, while another 28 percent pass on more than half of the additional costs. At the same time, one in four companies bears a large share of the tariff costs itself — with consequences for margins and business performance.

The uncertainty is spilling over into investment planning. The share of companies that have canceled planned investment projects rose from 9 to 16 percent. Roughly one in three companies (around 33 percent) is postponing investment projects — an increase of 11 percentage points. Ifo researcher Sebastian Link interprets this as a warning sign: "Das ist ein Alarmsignal, gerade weil Investitionsentscheidungen normalerweise sehr träge sind." Link added that US tariff policy not only affects business in the United States itself but is increasingly also slowing investment in Germany as a business location: "Die US-Zollpolitik trifft nicht nur das Geschäft in den USA selbst, sondern bremst zunehmend auch Investitionen am Standort Deutschland."

Investment on the Brakes

Ifo President Clemens Fuest sees the way out of Germany's cyclical weakness in more investment and strengthened consumer confidence. He said the state has already put a great deal of money into infrastructure, climate neutrality, and defense. "Wir würden uns wünschen, dass das jetzt wirklich in öffentliche Investitionen fließt, denn die haben einen starken Konjunktureffekt," Fuest emphasized. However, large amounts of funds are being "Richtung konsumtiver Ausgaben verschoben." Fuest also said: "Es könnte dadurch nach oben gehen, dass wir binnenwirtschaftliche Impulse haben."

Overall, the Ifo survey paints a picture of an industry that is bracing for high tariff burdens while simultaneously holding back investment. The braking pressure from US trade policy is thus hitting precisely those areas considered especially important for Germany as a business location.

Ifo President Calls for Domestic Economic Stimulus

The event at which Fuest and Baur spoke was held on Tuesday at the OECD Berlin Centre. The survey results are based on a current Ifo poll of German industrial companies and were published on Tuesday.

Economic experts view these developments in the context of a more challenging global competitive environment. The entrenchment of US tariffs is seen as a burden that cannot easily be offset by corporate adjustments. The question of whether domestic economic stimulus can break the investment logjam is likely to shape economic policy debate in Germany in the coming months.