Taiwan says it will remain world’s top AI chip maker after new US trade deal cuts tariffs, boosts investment

Taiwan said on Friday it would continue as the world’s most important maker of artificial intelligence chips. The pledge followed a trade agreement with the United States that cuts tariffs on Taiwanese goods and increases investment in the US. The deal was reached after months of negotiations.

Under the agreement, Washington will lower =tariffs on Taiwanese goods to 15 per cent. This is down from a 20 per cent reciprocal rate introduced to address US trade deficits and what it views as unfair practices. Sector-specific tariffs on Taiwanese auto parts, timber, lumber, and wood products will also be capped at 15 per cent. Generic pharmaceuticals and certain natural resources will face no reciprocal duties, according to the US Commerce Department.

Taiwan’s government said the new tariff rate would not be added on top of existing duties, easing a major concern for domestic industries.

Taiwan praises outcome of talks

Taiwanese Premier Cho Jung-tai praised negotiators for what he described as “delivering a well-executed home run”.

“These results underscore that the progress achieved so far has been hard-won,” Cho said.

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The US Commerce Department said the agreement “will drive a massive reshoring of America’s semiconductor sector”.

Chip dominance and security concerns

Taiwan is a global powerhouse in semiconductor production, a sector central to the world economy. Its dominance has long been described as a “silicon shield”, seen as a factor deterring an invasion or blockade by China, which claims the island as part of its sovereign territory.

Concerns about a potential Chinese attack have raised fears of disruptions to global supply chains, increasing pressure for more chip manufacturing outside Taiwan.

“Based on current planning, Taiwan will still remain the world’s most important producer of AI semiconductors, not only for Taiwanese companies, but globally,” Economic Affairs Minister Kung Ming-hsin told reporters on Friday.

He said production capacity for advanced AI chips would be split about 85-15 between Taiwan and the US by 2030, shifting to 80-20 by 2036.

China’s foreign ministry said it “resolutely opposes” the deal.

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Investment commitments and political scrutiny

The agreement must still be approved by Taiwan’s opposition-controlled parliament, where lawmakers have raised concerns about the risk of losing chip dominance.

Cheng Li-wun, chairperson of the Kuomintang party, which supports closer ties with Beijing, criticised the deal. She warned that increased Taiwanese investment in US chip production could risk “hollowing out” Taiwan’s economy.

The US Commerce Department said Taiwanese chip and technology companies are expected to make “new, direct investments totalling at least $250 billion” in the US to build and expand capacity in areas such as advanced semiconductors and artificial intelligence.

Taiwan will also provide “credit guarantees of at least $250 billion to facilitate additional investment by Taiwanese enterprises”, it said, adding that this would support the growth of the US semiconductor supply chain.

Industry reaction in Taiwan

Chris Wu, sales director at Taiwanese machine tool maker Litz Hitech Corp, said lowering the reciprocal tariff to 15 per cent was a positive step.

“Of course it’s good that the reciprocal tariff has been lowered to 15 per cent—at least it puts us on par with our main competitors South Korea and Japan,” Wu said.

However, he added that with single-digit profit margins, “there is no way we can absorb the tariff” for US customers.

Implications for TSMC

More than half of Taiwan’s exports to the US are information and communications technology products, including semiconductors.

“The objective is to bring 40 per cent of Taiwan’s entire supply chain and production to domestically bring it into America,” US Commerce Secretary Howard Lutnick told CNBC.

“We’re going to bring it all over, so we become self-sufficient in the capacity of building semiconductors,” he added.

Although the announcement did not name companies, it has major implications for Taiwan Semiconductor Manufacturing Company, which last year pledged to spend an additional $100 billion on US plants.

Demand for AI technology has driven sharp profit growth at the firm, the world’s largest contract chipmaker, supplying companies from Apple to Nvidia.

“As a semiconductor foundry serving customers worldwide, we welcome the prospect of robust trade agreements between the United States and Taiwan,” TSMC said in a statement on Friday.

“Strengthened trade relations are essential for advancing future technologies and ensuring a resilient semiconductor supply chain.”

Lutnick said TSMC has bought land and could expand operations in Arizona as part of the deal.

“They just bought hundreds of acres adjacent to their property. Now I’m going to let them go through it with their board and give them time,” he told CNBC.

The US Commerce Department said Taiwanese producers investing in the US would receive more favourable treatment in future semiconductor duties.

A day earlier, US officials held off imposing broader chip tariffs, instead announcing a 25 per cent duty on certain semiconductors intended to be shipped abroad, a move aimed at allowing Nvidia to sell AI chips to China.