Washington Agrees 15% Tariff Rate for Taiwan Following Major Chip Investment Commitment

Washington has finalised a tariff reduction for Taiwanese imports, lowering duties to 15% following commitments from the island's technology sector to invest heavily in American semiconductor production.

The Commerce Department confirmed that semiconductor and technology firms based in Taiwan have agreed to new direct capital commitments totalling a minimum of $250bn. The arrangement also includes tariff exemptions specifically for Taiwanese chipmakers establishing or expanding operations within the United States.

Securing greater domestic capacity in semiconductor manufacturing has emerged as a strategic priority for Washington following supply chain disruptions during the pandemic, which exposed critical vulnerabilities in the availability of chips used across industries from automotive to consumer electronics.

Commerce Secretary Howard Lutnick described the agreement as a pathway toward self-sufficiency in semiconductor production. Speaking to business media, he indicated the administration's intention to relocate substantial portions of the supply chain to American soil.

Recent years have seen Washington commit significant public funds to support the semiconductor sector. Those subsidies have attracted investment from major players, including TSMC, the Taiwanese manufacturing leader that commands a dominant position in global chip production.

TSMC updated investors this week on plans to accelerate its American investments. The company opened a manufacturing facility in Arizona during 2024, supported by $40bn in government funding approved under the previous administration. The Arizona plant now produces chips for leading American technology companies including Nvidia, Apple, and AMD.

Lutnick suggested the latest trade agreement could encourage further expansion by TSMC and is designed to attract smaller suppliers to relocate alongside larger manufacturers, building out a more complete domestic ecosystem.

Alongside corporate capital commitments, the Taiwanese government will provide $250bn in financing to support companies participating in the initiative, according to the Commerce Department.

Taiwan, which governs itself but faces territorial claims from Beijing, had sought clarity on tariff terms under the current administration after seeing duties on its exports rise to 20% last year. Officials in Taipei have been cautious about demands involving technology transfer, which some view as essential protection against potential military threats.

The new 15% rate aligns Taiwan's tariff treatment with that of other key American trading partners including Japan, South Korea, and the European Union. Those rates were negotiated in agreements following tariff increases announced by President Trump last April, which the administration positioned as corrective measures to address trade imbalances.

Legal challenges to those duties are currently before the Supreme Court, with businesses and several states arguing the tariffs represent executive overreach beyond constitutional authority.

The White House had previously signalled the possibility of broader semiconductor tariffs justified on national security grounds. That proposal, which alarmed American firms reliant on imported chips, has not been implemented.

The announcement arrives as Intel, a domestic competitor to TSMC, continues to face difficulties in advancing its production of cutting-edge chips for artificial intelligence applications. The American chipmaker received a 10% government equity stake last year in an unexpected intervention, yet the company is proceeding with additional workforce reductions following earlier rounds of job cuts.

Data shows the semiconductor manufacturing sector eliminated more than 17,000 positions last year, highlighting challenges in translating government support into employment growth despite the scale of public investment in the industry.

Industry impact and market implications

The tariff agreement carries significant implications for global semiconductor supply chains and competitive dynamics in advanced manufacturing. By securing lower duties in exchange for capital commitments, Washington is attempting to reshape the geography of chip production while maintaining access to Taiwanese expertise and capacity.

For TSMC, the arrangement strengthens its strategic position in the American market while potentially reducing exposure to geopolitical tensions surrounding Taiwan. The company's Arizona expansion could position it to capture growing demand from American technology firms seeking supply chain security and preferential access to domestically produced components.

American chipmakers, particularly Intel, face intensified competitive pressure as subsidies and tariff structures increasingly favour foreign manufacturers willing to establish American production. Intel's struggles in advanced chip manufacturing, combined with continued workforce reductions, suggest the subsidies alone have not resolved underlying competitive challenges in the sector.

The broader semiconductor supply chain may see consolidation around American production hubs if smaller Taiwanese suppliers follow larger manufacturers. This could create opportunities for logistics, materials, and equipment providers while potentially disrupting established supply relationships in Asia.

Financial markets may view the agreement as reducing regulatory and tariff uncertainty for technology companies dependent on Taiwanese chip imports, though the Supreme Court challenge to underlying tariff authority introduces ongoing legal risk. The employment data suggesting job losses despite investment raises questions about the sector's ability to deliver the manufacturing employment growth policymakers anticipate.