US announces trade deal with Taiwan, cuts tariff to 15% in exchange of $250 billion investment

The United States has signed a trade deal with Taiwan amidst the self-governed island's ongoing tensions with China, under which, the reciprocal tariff rate on Taiwan will be cut down to 15% from 20% announced during Donald Trump's Liberation Day address on April 2 last year.

The tariff rate on Taiwan puts them on an equal footing with Japan and South Korea, who also have a similar tariff rate. This new rate will not stack on top of existing most-favoured-nation duties, according to a statement from the Taiwanese cabinet.

Taiwan's tech industry has committed to invest at least $250 billion directly as part of the deal to expand advanced semiconductors, energy and AI cooperation in the US. This is inclusive of the previous $165 billion committed by Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chip manufacturing company.

Additionally, Taiwan also agreed to provide $250 billion in credit guarantees for further investment in the US semiconductor supply chain.

Sources told Bloomberg that the deal would require TSMC to build at least four more chip manufacturing plants in Arizona, adding to the six factories and two advanced packaging facilities it has already promised to open in the US.

Commerce Secretary Howard Lutnick told CNBC that Taiwan agreed to the investment number because it had been threatened with a tariff level of up to 100%.

“If they don’t build in America the tariff’s likely to be 100%,” Lutnick said. “If they commit to build in America, they can bring in their semiconductors during the time they’re building in America without a tariff.”

In response, the US has capped tariffs on Taiwanese auto parts, timber, lumber and wood derivative products at 15%. Generic Pharma and ingredients manufactured in Taiwan will attract zero tariff, according to the Commerce Ministry statement.

The deal comes amidst the ongoing Taiwan-China tensions, and ahead of Donald Trump's visit to China later in April. It also comes ahead of the ongoing Supreme Court hearing of the legality of the US President's tariff program.

(With Inputs From Agencies)