U.S.–Taiwan Trade Deal Secures $250B Chip Investment, Lowers Tariffs

The United States announced a trade agreement with Taiwan on Thursday, securing commitments to invest $250 billion in semiconductor and technology manufacturing within the United States in exchange for reductions in tariffs on imports from the island. Taiwan’s government will provide an additional $250 billion in credit guarantees to support smaller companies within the industry’s intricate semiconductor supply chain in expanding operations in the United States, the Commerce Department announced in a statement. Following months of negotiations, the Trump administration announced that it would reduce the U.S. tariff rate on commodities from Taiwan to 15 percent from the existing 20 percent.

Enhancing U.S. semiconductor chip manufacturing, which is utilized in a wide range of devices from automobiles to smartphones, has been a strategic priority for the United States since the COVID-19 pandemic revealed vulnerabilities in the supply chain. Taiwan's negotiating team has engaged with its American counterparts on over a dozen occasions since President Trump announced his initial wave of tariffs globally in April. The negotiators, headed by Vice Premier Cheng Li-chiun and the chief trade representative Yang Jen-ni, undertook six visits to Washington and conducted additional sessions via online platforms.

Why This News Matters:

This deal will change the future of the global tech supply chain at a time when semiconductors are used in almost everything, from cars and smartphones to AI systems and national defense. The U.S. believes that moving chip production closer to home will make the economy stronger and less likely to be affected by geopolitical shocks, especially those involving China and Taiwan. They are doing this by giving up tax breaks in exchange for a big investment that will last a long time. The deal is good for Taiwan's economy, which relies on exports, and it strengthens its strategic partnership with its biggest trading partner.

Section 232 Rules Offer Flexibility for Taiwan-Based Companies

Taiwan's economy relies heavily on exports, and last year, the United States overtook China to become its largest trading partner. Computer processors and the electronic components that incorporate them have traditionally been the primary export of the island. Taiwan also serves as a significant supplier of steel products, particularly metal fasteners such as screws and bolts, the majority of which are exported to the United States. President Trump has repeatedly urged Taiwan to reduce its dominance in advanced semiconductors and to relocate production to the United States. “We are going to bring it all over so that we become self-sufficient in the capacity of building semiconductors,” stated Howard Lutnick, the Secretary of Commerce, during a televised interview on Thursday.

The United States has allocated hundreds of billions of dollars in government subsidies to the semiconductor sector in recent years, supporting the acquisition and expansion of investments from industry leaders such as TSMC, the Taiwanese manufacturing powerhouse that holds a dominant position in the industry. As part of its earnings report on Thursday, the company announced that it is increasing its investments in the United States, where it inaugurated a new facility in 2024. Taiwan Semiconductor Manufacturing Company has acquired land and may expand in Arizona as part of this agreement, Commerce Secretary Howard Lutnick informed CNBC's Brian Sullivan during an interview on Thursday. “They just bought hundreds of acres adjacent to their property,” Lutnick stated. “I’ll let them go through with their board and give them time.” “Regarding TSMC’s plans, the market demand for our advanced technology is very strong, we continue to invest in Taiwan and expand overseas, all the investment decisions are based on market conditions and customer demands,” a TSMC spokesperson told CNBC.

The release also said that there will be some exceptions to the future tariffs under the Section 232 framework for companies who make chips in the U.S. Taiwanese companies like TSMC that are developing new semiconductor fabs in the U.S. will be able to bring in up to 2.5 times the amount of capacity they are creating while the factories are being built, and they won't have to pay tariffs on that. The notification claimed that Taiwanese car parts, lumber, and other related goods will also not have to pay duties of more than 15% under Section 232.

Commerce claimed that once the plants are done, businesses will be able to bring in 1.5 times what they make in the U.S. TSMC has previously established fabs in Arizona, spending up to $40 billion to make semiconductors for firms like Apple and Nvidia. They used money from the U.S. government under the semiconductors Act to do this. The U.S. government has made it a top priority to make cutting-edge chips in the U.S. because the fight for access to AI semiconductors has become a major geopolitical issue. U.S. officials have also indicated that if China invades Taiwan and makes it harder to get TSMC chips, the U.S. economy will be in a lot of trouble.

U.S. Pledges Resources and Tariff Relief for Taiwan’s Semiconductor Industry

The United States has consented to support Taiwanese companies in securing resources such as land, water, electricity, infrastructure, tax incentives, and visa programs, according to a statement issued by Taiwan’s Executive Yuan on Friday. By proportion, only a limited segment of Taiwan's exports has been affected by the tariffs. These encompass plastic, textile, and agricultural commodities. Washington would eliminate tariffs on generic pharmaceuticals and their components, as well as aircraft parts and certain natural resources. The administration had previously exempted semiconductors and numerous electronic components from those tariffs, stating that these sectors would be subject to distinct national security tariffs enacted pursuant to a legal provision known as Section 232.

However, under the new agreement, the United States announced that it would permit Taiwanese companies that have established or are developing semiconductor facilities to import a specified quantity of processors, proportional to their U.S. production capacity, without incurring duties. Taiwan has stated that, as the primary supplier of the majority of the world's sophisticated semiconductor chips, it has solicited preferential treatment irrespective of any tariffs imposed by the Trump administration under Section 232.