US and Taiwan strike trade deal tied to $250bn chip investment

The US and Taiwan have signed a trade agreement that will slash tariffs on the country to 15 per cent in exchange for a $250bn investment in the chip industry in the US, as Washington moves to secure semiconductor supply chains and boost investment in American manufacturing.

President Donald Trump’s administration said it would reduce levies on most goods from Taiwan from 20 per cent to 15 per cent, in line with duties on Japan and South Korea, and waive tariffs on generic drugs, aerospace parts and natural resources unavailable in the US.

Taiwanese semiconductor and technology companies would invest $250bn in the US, and Taiwan would provide credit guarantees for at least that amount, the two governments said. The agreement also sets out quotas for tariff-free imports of chips from Taiwan, where Taiwan Semiconductor Manufacturing Co, the world’s largest semiconductor manufacturer, makes most of the world’s advanced chips.

The agreement marks a breakthrough in Taipei’s efforts to protect its vital chip sector after the White House last year threatened a 100 per cent tariff on semiconductors unless foreign companies invested in US manufacturing.

The deal also ends a disadvantage for Taiwan as its new bilateral tariff rate and most-favoured nation treatment put it on par with other important US trading partners.

“The 15 per cent tariff rate we secured is the most favourable among the countries with the biggest trade surpluses with the US, including allies such as Japan, South Korea [and] the EU, and will create a level playing field,” the Taiwanese government said in a statement.

Taiwan’s vice-premier Cheng Li-chiun, who led the negotiations with the US, said that the sides reached the investment figure based on plans companies had made in their global expansion strategies.

“This is an FDI number that we arrived at by adding up the investment plans of companies throughout the supply chain collected in several rounds of discussions with companies during the negotiation process,” she said in a press conference broadcast from Washington.

Cheng added that the deal was not about moving the Taiwanese chip industry out of the country, remarks aimed at calming fears that shifting more manufacturing to the US could undermine the sector’s role in incentivising Washington to protect Taiwan against a Chinese attack.

Taiwan’s parliament, which is controlled by the opposition, needs to approve the agreement for it to take effect.

Technology industry experts were still examining the implications of the deal’s chip-related provisions.

It allows companies building semiconductor plants in the US to import 2.5 times the new facilities’ planned capacity, free of national security tariffs, over the construction period, according to both governments’ announcements.

Taiwanese companies that have already built chip manufacturing sites in the US would be able to import 1.5 times their production capacity tariff-free.

“This effectively means if TSMC eventually has 40 per cent of its capacity in the US, the remainder, even if all exported to the US, will be tariff-free,” Mark Li, Asia semiconductor analyst at Bernstein, wrote in a research note Friday. “Before this 40 per cent is reached, there is some exemption and TSMC pays a lower preferential rate above a quota.”

If that applies, TSMC would have to further crank up investment in the US.

“They’d have to put in at least $100bn” to make the savings on tariffs worthwhile, said G Dan Hutcheson, vice-chair of consultancy TechInsights.

But other observers said the quota rule would barely matter to TSMC because most of the chips it sold to US customers entered the country built into other devices and would therefore not be taxed as such.

“TSMC should be able to easily clear it — only 15 per cent of Taiwan’s silicon comes in [to the US] as chip, most [comes in] as [part of] finished products,” said an industry expert who asked not to be named because they are not authorised to speak to the media.

Washington delayed imposing levies on semiconductors when Trump forced sweeping “reciprocal” tariffs on much of the world last year. Instead, the administration launched a national security probe, known as a Section 232 investigation, to assess how tariffs might best be applied.

TSMC, which produces about 90 per cent of the world’s advanced semiconductors, has already pledged to invest $165bn in the US to build chip fabrication and processing plants, along with a research and development facility in Arizona. But its US capacity pales in comparison with its production lines in Taiwan.

The company started volume production for customers including Nvidia and Apple in its first Arizona plant in late 2025, and has said it expects to have 30 per cent of its most cutting-edge production capacity of 2 nanometres and below in the US when its Arizona complex is fully built up in the early 2030s.

However, that could be little more than 10 per cent of TSMC’s current total global production capacity, and would represent a far smaller share in a few years as the company has forecast a drastic further increase in capital investment.

“As a semiconductor foundry serving customers worldwide, we welcome the prospect of robust trade agreements between the United States and Taiwan,” TSMC said.

“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.”