One year of Trump 2.0: A bitter reckoning

Epochal shift, turning point, “Zeitenwende 2.0”: these terms are often invoked to describe the upheavals since Donald Trump’s inauguration as US President in January 2025. Indeed, the first year of his second term was marked by memorable threats, surprising political about faces, and figurative breaches of boundaries.

This behavior has far reaching consequences for the country itself, for example regarding the judiciary, migration policy, or the education and research sectors. But it is most prominently manifested in economic and trade policy. The “America First” principle has triggered unprecedented protectionism that is turning the global trade order upside down. Although the tariffs threatened on the so called “Liberation Day” ultimately did not materialize in full force, the average effective import tariff rate of the United States stands at a historically high 14.4 percent (Yale Budget Lab, 2025). Worse still, with its trade policy, the US is breaking principles it helped establish, thereby contributing to the erosion of the rules based international order.

The political agreement reached between the EU and the US last summer — the so-called “Turnberry Deal” — had raised hopes for somewhat greater stability. Yet even with this agreement, uncertainties persist, especially considering the continued expansion of the list of products subject to additional tariffs or facing such threats — often justified by allegations of risks to national security. Trump’s recent threats of additional tariffs against several EU member states due to the deployment of troops to Greenland underline how unpredictable the situation remains.

For many companies, the resulting uncertainty poses an even greater problem than the tariffs themselves. This is having tangible effects on the close and consequential German US economic relationship, particularly in terms of foreign direct investment and trade.

Foreign direct investment slowed

Many German companies have long maintained a presence in the United States, investing and creating jobs. But the substantial policy uncertainty caused by the US administration’s often erratic actions is holding back corporate decision making. Investment planning typically spans several years. Yet when basic assumptions about the economic environment can be fundamentally called into question from one day to the next, very few companies are willing to make far reaching decisions — preferring instead to wait.

This is also reflected in data from the Deutsche Bundesbank on German foreign direct investment flows into the US. From Trump’s inauguration in February 2025 through November 2025, the most recent monthly data available at publication, German companies invested a total of roughly €10.2 billion in the US, compared with nearly €19 billion in the same period the year before. German foreign direct investment flows into the US have therefore fallen by about 45 percent since Trump took office, compared to the previous year.

Because investment flows — as flow variables — fluctuate more strongly than stock values, a comparison between the February–November 2025 figure and the average investment flow for the same period during 2015–2024 is more robust. That average amounts to around €13.4 billion. Even relative to this benchmark, the post inauguration figure is more than 24 percent lower.

While the newest numbers should be interpreted with caution — monthly investment data fluctuate significantly, and revisions and special effects occur regularly — the trend nonetheless suggests that German companies are currently holding back investments in the US. Those who commit large sums require reliability and planning certainty. At the moment, neither is present in the United States. Thus, this policy seems — at least in its first year — to be running counter to the US government’s stated objective of rebuilding the country’s industrial base, including through foreign investment. This aligns with the findings of a special evaluation of the AHK World Business Outlook from summer 2025 (DIHK, 2025).

This is, for now, only a snapshot of the first year of the new US administration — a year marked by extraordinary uncertainty. The US remains an attractive market in many respects. It is therefore possible that the willingness to invest increases again. Recent surveys of German companies’ investment intentions in the US at least point in this direction (Fröndhoff / Meyer, 2026). Yet these are merely statements of intent that are not yet visible in the data. Trump’s newest tariff threats against several EU countries, including Germany, are unlikely to improve the situation.

A turning point in trade

The German economy is most directly affected by the erratic US tariff policy. Correspondingly, German exports to the United States have sharply declined since Trump took office. Between February and October 2025 (the most recent available data at publication), German exports to the US year on year declined by about 8.6 percent (see figure). This is the steepest decline since 2010, except for the COVID 19 pandemic period.

The similarly pronounced decline in 2016 can be explained by strong exchange rate effects: the euro had sharply depreciated against the US dollar in 2015 due to extremely expansionary ECB monetary policy but stabilized again in 2016. This, along with economic uncertainty induced by the bitter Clinton–Trump election campaign, dampened German exports to the US in 2016.

The sharp decline in German exports to the US in 2025 cannot be explained by tariffs alone — it is also likely a consequence of the dollar’s depreciation, itself driven by declining confidence in U.S. stability.

In some sectors, German exports to the US have fallen even more sharply (see also Sultan, 2025). Exports of motor vehicles and parts dropped by almost 19 percent between February and October 2025 compared with a year earlier, machinery exports declined by 10 percent, and exports of chemical products to the U.S. fell by over 10 percent.

Tariff policy also has negative consequences for the US itself, particularly because the transatlantic economic area is so deeply integrated and the US remains dependent on imports from the EU (Sultan/Matthes, 2025). Higher import tariffs make many goods and intermediate products more expensive. This contributes to US inflation remaining well above the targeted 2 percent. This has sparked a broad debate about affordability, which had a decisive impact on the gubernatorial elections in some states last year and is likely to influence this year's midterm elections as well.

Conclusion

Many of the consequences of “Trump 2.0” will only become apparent over the longer term — for example regarding US productivity, its soft power, and the stability of its institutions and alliance networks. But looking at the first year and the German US economic relationship, the currently available data on German foreign direct investment flows and exports to the U.S. are clearly marked by the economic policy of Trump 2.0. This harms the German economy but also has significant negative effects on the US itself. The bottom line is that the track record of Trump 2.0 so far has been bitter for both sides of the Atlantic.