The European Central Bank has published research in its Economic Bulletin on how tariff increases affect greenfield foreign direct investment and the implications for the euro area. Using global data on announced projects from 2016 to 2023, the article finds that tariffs are associated with higher greenfield FDI overall as firms seek to bypass trade barriers, but the effect differs sharply by investment type. High-intensity tariff measures can deter manufacturing FDI, and the article finds little evidence that the 2025 US tariff announcements triggered a broad-based surge in inward US manufacturing investment. Low-intensity tariff increases are associated with about a 4% rise in announced greenfield projects in the following year, medium-intensity increases with about 6%, and high-intensity increases with about 24% both before and after the increase, indicating announcement or anticipatory effects. For manufacturing projects, however, high-intensity tariff increases are associated with a roughly 21% fall in announced projects in the same year. Sector results are mixed, with positive responses in textiles, motor vehicles, computers, electrical equipment and machinery, and negative responses in sectors such as refined petroleum products, rubber and plastics, fabricated metals and pharmaceuticals. On the United States, the article notes that 2025 inward greenfield FDI remained elevated relative to earlier administrations but was concentrated in a small number of countries and projects, notably Taiwan Semiconductor Manufacturing Company and AI-related investment, while official headline investment commitments exceeded comparable project-level greenfield FDI measures and announced projects often do not translate into realised investment. For the euro area, higher US tariffs could in principle shift activity from exports to local production in the United States, which could weigh on euro area exports and, in some countries, domestic investment. But euro area outward greenfield FDI declined in 2025, largely because manufacturing investment into the United States fell, leading the article to conclude that the related risks to the euro area remain contained.
European Central Bank 2026-05-15
European Central Bank publishes research showing tariffs boost overall greenfield FDI but high intensity measures deter manufacturing investment
The European Central Bank published Economic Bulletin research on how tariff increases affect greenfield foreign direct investment and the implications for the euro area, finding that tariffs generally raise greenfield FDI as firms bypass trade barriers, but high-intensity measures deter manufacturing investment and did not trigger a broad-based surge in US manufacturing FDI. The article reports heterogeneous sectoral effects and notes that US inward greenfield FDI was elevated but concentrated in a few large projects, while euro area outward greenfield FDI to the United States declined, leading to the assessment that risks to the euro area remain contained.