WASHINGTON: The United States and Taiwan reached a trade deal Thursday that cuts tariffs on many of the semiconductor giant’s exports, directs new investments in the U.S. technology industry and risks infuriating China.
The deal strengthens the Trump administration’s ties with Taipei at a critical time as China increases pressure on the island, which it considers its own, and Washington works to avoid an all-out trade war with Beijing.
Under the long-negotiated deal, Taiwanese chipmakers like TSMC that increase their U.S. production will be charged lower tariffs on semiconductors or related manufacturing equipment and products they import into the United States and will be able to import them duty-free. The general tariffs that apply to most other Taiwanese exports to the United States will drop from 20% to 15%.
Generic pharmaceuticals, aircraft components and “unavailable natural resources” will be subject to a 0% tariff, the Commerce Department said. The United States also pledged that Taiwan would not be treated worse than anyone else if tariffs on potato chips were subsequently increased, according to Taiwan.
In return, 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, with more to come, according to U.S. Commerce Secretary Howard Lutnick.
Taiwan will also guarantee an additional $250 billion in credit to facilitate new investments, the Trump administration said.
Lutnick said in an interview on CNBC As of Thursday, the goal was to bring 40% of Taiwan’s entire chip supply and production chain to the United States. He added that if they didn’t build in the United States, the tariffs would probably be 100%.
Boost for key chipmaker suppliers
The increase in chip production will likely generate more business for 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 chemical and materials suppliers, such as Sumitomo Corp and Qnity Electronics, a DuPont spinoff.
Many of these companies have a long presence in Arizona due to Intel’s major operations there, but they have expanded their facilities with the arrival of TSMC in the state, where it is expanding an existing manufacturing facility.
Shares of chip company Nvidia, which relies on TSMC for manufacturing, rose more than 2%, retaining most of its gains from earlier in the day. Intel shares were slightly lower.
Depository receipts and shares of ASML, Lam, Applied Materials and Qnity rose about 4% to 6%.
Washington considers computer chips a national security problem
Washington has become increasingly impatient with its reliance on computer chips from abroad, particularly from an island in China’s crosshairs.
Semiconductors were invented in the United States, many are designed there, and the country remains a leading importer of them, from consumer gadgets to AI chatbots and advanced weapons. But many of the most advanced chips are made overseas, notably in Taiwan. Intel and South Korea’s Samsung Electronics are also increasing US production capacity.
TSMC announced its Arizona factory in 2020, during US President Donald Trump’s first term, and expanded it under his Democratic successor Joe Biden.
As it grows, TSMC risks overspending on a high-flying industry, running into labor and skills shortages, facing tricky politics around foreign worker immigration, and shifting its business away from Taiwan at a time of immense geopolitical vulnerability for the island.
China considers Taiwan its own territory, a position Taipei rejects. Washington maintains formal diplomatic ties with Beijing, but maintains unofficial relations with Taiwan and is the island’s largest arms supplier.
“Look, they have to keep our president happy, right,” Lutnick told CNBC, referring to Taiwan. “Because our president is the key to protecting their country.”
Taiwanese semiconductor giant prepares to expand in the United States
Under the agreement, chipmakers expanding in the United States will be able to import up to 2.5 times their new capacity of semiconductors and wafers without additional tariffs during an approved construction period. Preferential treatment will apply to chips exceeding this quota.
Dan Hutcheson, vice president at technology analysis firm TechInsights, said the deal was likely to generate higher demand in the chipmaking supply chain as Taiwanese companies build U.S. operations.
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 intact, for now.
TSMC announced a record 35% increase in fourth-quarter profit on Thursday. CEO CC Wei said the company is seeking permits in Arizona to begin construction of a fourth plant and the first advanced packaging plant.
Tariffs on auto parts, wood, lumber and wood products from Taiwan will not exceed 15 percent under the new agreement, which Taipei says will be subject to review by Taiwan’s parliament.
The U.S. Supreme Court is expected to soon rule on the president’s power to impose sweeping tariffs without congressional approval. It’s not clear how trade deals with Taiwan or other trade deals Trump has made would change if the court finds many of his tariffs unconstitutional.
