WASHINGTON: The United States and Taiwan struck a trade deal Thursday that cuts tariffs on many of the semiconductor powerhouse’s exports, directs new investment into the U.S. technology industry and risks angering China.
The deal deepens the Trump administration’s ties with Taipei at a critical time when China is increasing pressure on the island, which it considers its own, and Washington has worked to avoid an all-out trade war with Beijing.
Under the long-negotiated deal, Taiwanese chipmakers like TSMC that expand U.S. production will be charged a lower tariff on semiconductors or related manufacturing equipment and products they import into the United States and will be able to import some duty-free. Broad tariffs on most other Taiwanese exports to the United States will fall from 20% to 15%.
Generic pharmaceuticals, aircraft components and “unavailable natural resources” will face a 0% tariff, the Commerce Department said. The United States also pledged that Taiwan will be treated no worse than anyone else should chip tariffs rise later, according to Taiwan.
In exchange, Taiwanese companies will invest $250 billion to increase semiconductor, energy and artificial intelligence production in the United States. That includes $100 billion already committed by TSMC in 2025, and more to come, according to US Commerce Secretary Howard Lutnick.
Taiwan will also guarantee an additional $250 billion in credit to facilitate increased investments, the Trump administration said.
Lutnick said in an interview in CNBC on Thursday that the goal was to bring 40% of Taiwan’s entire chip production and supply chain to the United States. He said that if they didn’t build in the United States, the tariff would probably be 100%.
Boost to the main suppliers of chip manufacturers
The increase in chip production will likely provide more business to TSMC’s major suppliers, including major chip manufacturing tool makers such as ASML, Lam Research and Applied Materials.
It should also give a boost to smaller suppliers of chemicals and materials, such as Sumitomo Corp and DuPont subsidiary Qnity Electronics.
Many of those companies have long had a presence in Arizona due to Intel’s significant operations there, but have expanded their facilities with the arrival of TSMC to the state, where it is expanding an existing manufacturing plant.
Shares of chip company Nvidia, which relies on TSMC for manufacturing, rose more than 2%, maintaining most of their gains from earlier in the day. Intel shares fell modestly.
Depositary receipts and shares of ASML, Lam, Applied Materials and Qnity rose 4% to 6%.
Washington considers computer chips a national security problem
Washington has become increasingly impatient with its dependence on computer chips from abroad, especially an island in China’s sights.
Semiconductors were invented in the United States, many are designed there, and it remains one of the largest importers of them for everything from consumer devices to artificial intelligence chatbots and advanced weaponry. But many of the most advanced chips are made abroad, especially in Taiwan. Intel and South Korea’s Samsung Electronics are also expanding American production capacity.
TSMC announced its factory in Arizona in 2020, during US President Donald Trump’s first term, and expanded it under his Democratic successor Joe Biden.
As it expands further, TSMC risks spending too much in a high-flying industry, encountering labor and skills shortages, navigating complicated policies around the immigration of foreign workers, and moving business out of Taiwan at a time of immense geopolitical vulnerability for the island.
China considers Taiwan its own territory, a position Taipei rejects. Washington has formal diplomatic ties with Beijing, but maintains unofficial relations with Taiwan and is the island’s most important arms supplier.
“Look, they need to keep our president happy, right?” Lutnick told CNBC, referring to Taiwan. “Because our president is the key to protecting his country.”
Taiwan’s semiconductor power to expand in US
Under the deal, chipmakers expanding in the U.S. will be able to import up to 2.5 times their new semiconductor and wafer capacity without additional tariffs during an approved construction period. Preferential treatment will be applied to tokens that exceed this quota.
Dan Hutcheson, vice president at technology analytics firm TechInsights, said the deal is likely to drive greater demand in the chip manufacturing supply chain as Taiwanese companies build operations in the United States.
Trump on Wednesday imposed a 25% tariff on certain AI chips, such as the Nvidia H200 AI processor. But the rule includes broad exemptions for those used in U.S. data centers and leaves most other chips untouched, for now.
TSMC on Thursday reported a 35% rise in fourth-quarter profit, which beat forecasts. Chief Executive CC Wei said the company was applying for permits in Arizona to begin construction of a fourth factory and first advanced packaging plant.
Tariffs on auto parts, lumber, sawn timber and wood products from Taiwan will not reach more than 15% under the new agreement, which Taipei said was subject to review in Taiwan’s parliament.
The U.S. Supreme Court is expected to rule soon on the president’s authority to impose broad tariffs without congressional approval. It is unclear how trade agreements with Taiwan or others that Trump signed would change if the court rules that many of his tariffs are unconstitutional.
