wittmann is right, the Italians can’t participate in the German attack so they are bystanders. By rule the German transport should endure one round of combat, then it can retreat if still alive (unless you are playing a friendly game and allow the German player to rethink his move based on the new info).
Question regarding Invasion of U.S.A.
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USA is not at war,
Germany takes Gibraltar, which gives Italy the oppurtunity - using the NB in Gib, to take East USA - which is undefended.
The capital falls instantly. Does the factory in EUS, just NOT get upgraded? does it get upgraded upon the attack, and then demolished? or does it get upgraded after Italy takes it!? Mwahaha.
The rules do not specify, that the factory has to be under U.S. control….
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The ICs become major the instant Italy declares war on the US, which is BEFORE it conducts combat. Thus, when Italy captures EUS, it has a major, which is immediately downgraded as per the “captured majors become minors” rule.