Taipei/Washington: The United States and Taiwan have reached a landmark trade agreement aimed at lowering tariffs on Taiwanese exports while accelerating large-scale Taiwanese investment in America’s semiconductor and artificial intelligence supply chains. The deal, announced on Friday, reflects Washington’s push to reshore critical chipmaking capacity and Taipei’s effort to preserve its global dominance in advanced semiconductors amid rising geopolitical tensions and intensifying competition over AI technology.

Under the agreement, the United States will reduce tariffs on Taiwanese goods to 15 per cent, down from a 20 per cent “reciprocal” rate that had been imposed as part of broader US efforts to address trade deficits and practices it considers unfair. In parallel, Taiwanese chip and technology companies have committed to make at least $250 billion in new direct investments in the United States, with an additional $250 billion in credit guarantees to facilitate further expansion.

Taiwan’s government hailed the deal as a strategic win that balances economic interests with national security concerns, while US officials described it as a critical step toward rebuilding America’s domestic semiconductor ecosystem.

Taiwan’s chip dominance and US concerns

Taiwan occupies a central position in the global technology economy. The island is home to the world’s most advanced semiconductor manufacturing capacity, producing the cutting-edge chips that power everything from smartphones and data centres to military systems and artificial intelligence platforms. Companies such as Taiwan Semiconductor Manufacturing Company (TSMC) are indispensable to global tech giants including Apple, Nvidia, and AMD.

This dominance has long been described as Taiwan’s “silicon shield,” a factor that both deters potential aggression and incentivises international support, particularly from the United States. China, which claims Taiwan as part of its sovereign territory, has not ruled out the use of force to assert control, raising fears of a disruption to global chip supplies in the event of conflict.

Those fears have intensified in recent years, especially as AI-driven demand has surged and semiconductors have become even more strategically vital. For Washington, dependence on a geographically concentrated supply chain has emerged as a national security vulnerability. The new deal with Taiwan is designed to address that risk by shifting a significant portion of chip production to US soil.

“The agreement will drive a massive reshoring of America’s semiconductor sector,” the US Commerce Department said, framing the deal as a cornerstone of its long-term industrial strategy.

Tariff reductions and sector-specific terms

A key element of the agreement is the reduction of tariffs on Taiwanese goods to 15 per cent, bringing Taiwan broadly in line with major US trading partners such as South Korea and Japan. The Taiwanese government confirmed that the new tariff rate will not be stacked on top of existing duties, easing a major concern for local industries that feared a cumulative burden.

In addition to the general tariff cut, sector-specific tariffs on Taiwanese auto parts, timber, lumber, and wood products will also be capped at 15 per cent. Certain categories, including generic pharmaceuticals and specific natural resources, will face no “reciprocal” duties at all, according to the US Commerce Department.

Taiwanese Premier Cho Jung-tai praised the negotiating team for securing what he called a “well-executed home run” after months of talks. “These results underscore that the progress achieved so far has been hard-won,” Cho said, signalling the political importance of the agreement for Taipei.

Industry reaction in Taiwan has been cautiously positive. Chris Wu, sales director at Taiwanese machine tool maker Litz Hitech Corp, said the tariff cut was welcome, but warned that margins remain tight. “Of course it’s good that the reciprocal tariff has been lowered to 15 per cent—at least it puts us on par with our main competitors South Korea and Japan,” he said. “But given our single-digit profit margins, there is no way we can absorb the tariff for US customers.”

Massive investment commitments

The most consequential aspect of the deal lies in the investment pledges. Taiwanese chip and technology firms are set to make at least $250 billion in direct investments in the United States to build and expand capacity in advanced semiconductors, AI hardware, and related technologies. In addition, Taiwan will provide credit guarantees of at least $250 billion to support further overseas investment by its companies.

US officials say these commitments will help anchor a resilient semiconductor supply chain on American soil. Commerce Secretary Howard Lutnick said the objective was ambitious: to bring as much as 40 per cent of Taiwan’s overall supply chain and production capacity into the United States.

“We’re going to bring it all over, so we become self-sufficient in the capacity of building semiconductors,” Lutnick told CNBC.

The deal has major implications for TSMC, the world’s largest contract chipmaker. While the agreement did not explicitly name the company, it comes on the heels of TSMC’s pledge last year to invest an additional $100 billion in US manufacturing facilities, particularly in Arizona. Lutnick said TSMC has already acquired large tracts of land adjacent to its existing property, suggesting further expansion is under consideration.

“They just bought hundreds of acres adjacent to their property,” Lutnick said. “Now I’m going to let them go through it with their board and give them time.”

Balancing reshoring with Taiwan’s leadership

Despite the push to expand production in the United States, Taiwanese officials were keen to emphasise that the island will remain at the centre of global AI chip manufacturing for the foreseeable future. Economic Affairs Minister Kung Ming-hsin sought to reassure both lawmakers and the public that Taiwan’s technological edge would not be eroded by overseas investment.

“Based on current planning, Taiwan will still remain the world’s most important producer of AI semiconductors, not only for Taiwanese companies, but globally,” Kung said.

He projected that production capacity for advanced AI chips would be split roughly 85–15 between Taiwan and the United States by 2030, shifting to about 80–20 by 2036. These figures suggest a gradual diversification rather than a wholesale transfer of capability.

Nevertheless, the deal will require approval by Taiwan’s opposition-controlled parliament, where some lawmakers have voiced concern that expanding manufacturing abroad could weaken Taiwan’s strategic leverage and economic security. The debate reflects a broader tension between the need to manage geopolitical risk and the desire to preserve domestic industrial dominance.

Strategic and geopolitical implications

Beyond economics, the agreement has clear geopolitical overtones. By deepening economic integration and encouraging Taiwanese investment, Washington is reinforcing its strategic partnership with Taipei at a time of heightened US–China rivalry. At the same time, the US is tightening controls on where and how advanced chips can be sold.

A day before the deal was announced, US officials held off on imposing broader semiconductor tariffs, instead unveiling a 25 per cent duty on certain chips shipped abroad—a move widely seen as facilitating US chipmaker Nvidia’s ability to sell AI chips to China under controlled conditions.

The Commerce Department also said that Taiwanese producers who invest in the United States will receive more favourable treatment when it comes to future semiconductor duties, creating a powerful incentive for companies to expand their American footprint.

Industry response

TSMC welcomed the agreement, underscoring the importance of stable trade relations. “As a semiconductor foundry serving customers worldwide, we welcome the prospect of robust trade agreements between the United States and Taiwan,” the company said in a statement. “Strengthened trade relations are essential for advancing future technologies and ensuring a resilient semiconductor supply chain.”

As AI-driven demand continues to soar, profits at leading chipmakers have surged, intensifying the race to secure manufacturing capacity and technological leadership. The US–Taiwan trade deal reflects that reality: a blend of economic pragmatism, industrial policy, and strategic calculation aimed at shaping the future of the global semiconductor industry.

While the full impact of the agreement will unfold over years, its message is clear. Chips are no longer just commercial products—they are the backbone of economic power, technological leadership, and national security.