The United States and Taiwan reached a major trade agreement on Thursday aimed at reshaping the global semiconductor supply chain, cutting tariffs and driving massive new Taiwanese investment into the U.S. technology sector, a move likely to heighten tensions with China.
The deal reduces tariffs on many Taiwanese exports and offers preferential treatment to semiconductor companies that expand manufacturing in the United States. It also deepens ties between Washington and Taipei at a time when China has increased pressure on the self-governed island, which Beijing claims as its own.
Under the agreement, Taiwanese chipmakers — including industry leader Taiwan Semiconductor Manufacturing Co. (TSMC) — that build or expand facilities in the U.S. will face lower tariffs on semiconductors, manufacturing equipment and related products imported into the country. Some imports will be duty-free. Broader tariffs on most other Taiwanese exports will fall from 20% to 15%.
Generic pharmaceuticals, aircraft components and certain natural resources deemed unavailable in the U.S. will face zero tariffs, according to the Commerce Department. Washington also committed that Taiwan would not be treated worse than other trading partners if semiconductor tariffs are raised in the future.
In return, Taiwanese companies will invest $250 billion in U.S. semiconductor, energy and artificial intelligence production, including $100 billion already pledged by TSMC in 2025. Taiwan will also guarantee an additional $250 billion in credit to support further investment, the Trump administration said.
Commerce Secretary Howard Lutnick said the goal is to bring 40% of Taiwan’s chip supply chain and production to the United States, warning that companies that do not expand U.S. operations could face tariffs as high as 100%.
As reported in Reuters, the agreement is expected to benefit major suppliers to Taiwanese chipmakers, including ASML, Lam Research and Applied Materials, as well as smaller firms providing chemicals and materials. Many of these companies have expanded operations in Arizona, where TSMC is enlarging its manufacturing footprint.
Financial markets reacted positively, with shares of several chipmaking equipment firms rising between 4% and 6%. Nvidia, which relies on TSMC for manufacturing, gained more than 2%, while Intel shares edged lower.
U.S. officials increasingly view semiconductors as a national security issue, citing reliance on overseas production for technologies ranging from consumer electronics to artificial intelligence and advanced weapons. Although semiconductors were invented in the U.S., much of the most advanced manufacturing has shifted abroad, particularly to Taiwan.
TSMC first announced its Arizona factory in 2020 during President Donald Trump’s first term and expanded its plans under President Joe Biden. The company now risks higher costs, labor shortages and political challenges as it shifts more production away from Taiwan amid growing geopolitical uncertainty.
China continues to assert sovereignty over Taiwan, a claim rejected by Taipei. While the U.S. maintains formal diplomatic ties with Beijing, it remains Taiwan’s most important arms supplier and a key economic partner.
Under the deal, chipmakers expanding in the U.S. will be allowed to import up to 2.5 times their new production capacity of chips and wafers without additional tariffs during approved construction periods. Preferential treatment will apply beyond that threshold.
TSMC reported a 35% jump in fourth-quarter profit and said it is seeking permits to build a fourth factory in Arizona along with its first advanced packaging plant there.
The agreement comes as the U.S. Supreme Court is expected to rule on the president’s authority to impose broad tariffs without congressional approval, a decision that could affect this and other trade deals struck by the Trump administration.
