A new bilateral trade agreement trims US tariffs on Taiwanese goods to 15%, but ties relief to huge US-bound investments and aggressive reshoring targets.
On Jan. 15, Washington and Taipei signed a deal cutting duties to 15%, putting Taiwan on par with Japan, South Korea, and the EU. Premier Cho Jung-tai (卓榮泰) called it the “best tariff deal” available to surplus countries.
Taiwan committed US$250 billion (NT$7.89 trillion) in direct investment for semiconductor, energy, and AI production in the United States, plus another US$250 billion in credit guarantees to back Taiwanese firms building out a full chip ecosystem there.
Soon after, US Commerce Secretary Howard Lutnick said Washington aims to relocate 40% of Taiwan’s semiconductor supply-chain capacity by January 2029. He warned that companies headquartered in Taiwan that refuse to build in the US could face tariffs that would “likely be 100 percent.” Hyperbole or not, the message is clear: relief comes with leverage from the American side.
The agreement caps Section 232 tariffs on auto parts, lumber, and wood products at 15%, and exempts generic drugs and ingredients, aircraft parts, and critical raw materials. It also sweetens onshoring: during construction, Taiwanese chip fabs in the US can import up to 2.5× their planned capacity duty-free; after completion, up to 1.5× their US capacity remains exempt from Section 232 duties.
Short-term gains are real, especially for traditional industries that weren’t already exempt. The open question is the long term: how much of Taiwan’s bargaining power erodes as more production shifts abroad?
TSMC has pledged US$165 billion for US fabs and processing facilities, plus R&D. Reports suggest four to six additional plants may follow, potentially pushing the total above ten.
Even so, several factors should preserve Taiwan’s core leverage. Advanced R&D and leading-edge production remain in the country: Arizona began 4-nm in early 2025, while Taiwan moved to volume 2-nm later that year. Analysts expect less than 15% of TSMC’s advanced manufacturing to be in the US by 2029. And the broader ecosystem—talent, suppliers, cost structure—cannot be replicated quickly.
Strategically, the deal may buy space with a transactional US administration and create openings in security talks, arms sales, and tax issues like double taxation. It also supports a “non-red” supply-chain strategy by deepening links with democratic partners.
But there are structural risks. If Washington views Taiwan primarily as a source to be relocated, future pressure could grow. Taipei will need to diversify strategic value beyond semiconductors and plan for a world where chip dominance alone doesn’t guarantee security.
The agreement now heads to the Legislative Yuan, where opponents will test whether immediate relief and political upside outweigh potential long-term costs. For now, the deal is a diplomatic win that stabilizes trade and signals alignment with Washington—so long as Taiwan uses the breathing room to widen its economic base and protect the semiconductor advantages that still anchor its leverage.
