The United States has announced a major trade agreement with Taiwan that links lower tariffs to large investments in American semiconductor manufacturing. The decision highlights the growing importance of computer chips and reflects efforts to reduce supply chain risks exposed during the Covid-19 pandemic.
US Cuts Tariffs in Exchange for Major Investment
The United States has agreed to lower tariffs on imports from Taiwan from 20% to 15%. This follows a commitment by Taiwanese semiconductor and technology companies to make at least $250 billion in new, direct investments in the United States. The US Commerce Department said these investments will focus on boosting domestic production, especially in advanced technology and chip manufacturing.
Alongside company investments, the Taiwanese government will provide an additional $250 billion in financing to support firms expanding or relocating operations to the US. The agreement also includes tariff carve-outs for Taiwanese semiconductor companies that invest directly in American facilities, easing costs for companies building or expanding plants in the country.
The 15% tariff rate brings Taiwan in line with other major US trading partners such as Japan, South Korea, and the European Union. These rates were set through trade deals connected to tariffs announced last year to address trade imbalances.
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The tariff policy remains under legal review. The US Supreme Court is considering a request from businesses and several states seeking to strike down the duties, arguing they were imposed through an overreach of presidential power.
Semiconductor Production Takes Priority
Semiconductors, also known as computer chips, are essential parts of modern technology. They are used in cars, smartphones, household appliances, and artificial intelligence systems. During the Covid-19 pandemic, chip shortages caused widespread disruptions, forcing factories to slow or halt production and exposing heavy US reliance on overseas suppliers.
In response, increasing domestic semiconductor production has become a key US priority. Over recent years, the US government has devoted hundreds of billions of dollars in subsidies to support the industry and attract foreign manufacturers.
Taiwan plays a central role in the global chip market, largely due to Taiwan Semiconductor Manufacturing Company, known as TSMC. The company dominates advanced chip manufacturing worldwide. In a recent earnings update, TSMC said it is accelerating its investments in the United States.
TSMC opened a major semiconductor plant in Arizona in 2024. The factory produces chips for major American technology firms, including Nvidia, Apple, and AMD. The plant was built with the help of $40 billion in US government subsidies approved during the Biden administration.
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US Commerce Secretary Howard Lutnick said the agreement is meant to help the US become more self-sufficient in chip production. He stated that the deal could lead to further expansion by TSMC and encourage smaller suppliers to relocate to the US, strengthening the broader semiconductor supply chain.
Political Sensitivities and Industry Challenges
Taiwan is a self-governed island claimed by China, making trade and technology agreements especially sensitive. Taiwan has been cautious about transferring too much semiconductor expertise, as its leadership in chip manufacturing is seen by some as a safeguard against potential military action.
Taiwan had been pushing for relief from US tariffs after its exports were hit with a 20% duty last year. The tariff reduction comes after earlier threats by the Trump administration to impose wider tariffs on the semiconductor industry for national security reasons. Those proposals caused concern among US firms that rely heavily on imported chips, and the administration has so far held off on implementing them.
The announcement comes during a challenging period for the US semiconductor manufacturing sector. Intel, a major American chipmaker and competitor to TSMC, has struggled to gain traction in producing advanced chips designed for artificial intelligence. Last year saw the US government make an unexpected move by taking a 10% stake in Intel.
Despite this support, Intel is expected to cut thousands more jobs. Overall, the US semiconductor manufacturing sector shed more than 17,000 jobs last year, according to the latest data, even as government subsidies and foreign investments increased.