WASHINGTON: The United States and Taiwan struck a trade deal on Thursday that lowers tariffs on many of the semiconductor powerhouse’s exports, directing new investment into the US technology industry and risking infuriating China.
The deal deepens the Trump administration’s ties to Taipei at a critical time when China is increasing pressure on the island it considers its own and Washington has been working to avoid an all-out trade war with Beijing.
Under the long-negotiated deal, Taiwanese chipmakers like TSMC that are expanding U.S. production will be charged a lower tariff on semiconductors or related manufacturing equipment and products they import into the U.S. and can import some duty-free. Broad tariffs that apply to most other Taiwanese exports to the US will drop from 20% to 15%.
Generic drugs, aircraft components and “inaccessible natural resources” will face a 0% tariff, the Commerce Department said. The U.S. has also committed that Taiwan will not be treated worse than anyone else should chip tariffs be increased later, according to Taiwan.
In return, Taiwanese companies will invest $250 billion to increase production of semiconductors, energy and artificial intelligence in the United States. That includes $100 billion already committed by TSMC by 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 additional investment, the Trump administration said.
Lutnick said in an interview on CNBC on Thursday that the goal was to bring 40% of Taiwan’s entire chip supply chain and production to the United States. He said if they didn’t build in the US the tariff would probably be 100%.
Boost for the chip manufacturers’ major suppliers
Boost in chip production is likely to bring more business to TSMC’s major suppliers, including major chip-making toolmakers 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 spinoff Qnity Electronics.
Many of these firms have long had a presence in Arizona because of Intel’s large operations there, but they have expanded facilities with TSMC’s arrival in the state, where it is expanding an existing manufacturing plant.
Shares in 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 modestly lower.
Depositary receipts and shares in ASML, Lam, Applied Materials and Qnity rose around 4% to 6%.
Washington sees computer chips as a national security issue
Washington has grown increasingly impatient with its reliance on computer chips from abroad, particularly an island in China’s sights.
Semiconductors were invented in the US, many are designed there, and it remains a top importer of them for everything from consumer gadgets to AI chatbots and advanced weapons. But many of the most cutting-edge chips are made overseas, particularly in Taiwan. Intel and South Korea’s Samsung Electronics are also expanding US manufacturing capacity.
TSMC announced its Arizona plant 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 overspending on a high-flying industry, running into labor and skills shortages, navigating difficult foreign worker immigration policies and shifting business away from Taiwan at a time of enormous geopolitical vulnerability for the island.
China sees Taiwan as its own territory, a position Taipei rejects. Washington has formal diplomatic relations with Beijing, but maintains unofficial relations with Taiwan and is the island’s main 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.”
Taiwan’s semiconductor power plant to expand in the US
Under the agreement, chip makers expanding in the US will be able to import up to 2.5 times their new capacity of semiconductors and wafers without additional tariffs during an approved build period. Preferential treatment will apply to chips that exceed this quota.
Dan Hutcheson, vice chairman of technology research firm TechInsights, said the deal is likely to create more demand in the chipmaking supply chain as Taiwanese firms 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 exceptions for those used in U.S. data centers, leaving most other chips untouched for now.
TSMC reported a forecast-smashing 35% jump in fourth-quarter profit earlier on Thursday. CEO CC Wei said the company was applying for permits in Arizona to begin construction on a fourth factory and the first advanced packaging facility.
Tariffs on auto parts, lumber, lumber and wood products from Taiwan will not exceed 15% under the new deal, which Taipei said was subject to review in Taiwan’s parliament.
The US Supreme Court is expected to rule soon on the president’s authority to impose broad tariffs without congressional approval. It’s not clear how Taiwan or other trade deals Trump struck would change if the court rules many of his tariffs unconstitutional.
