WASHINTON: The US and Taiwan clinched a trade deal on Thursday that cuts tariffs on many of the semiconductor powerhouse's exports, channels new investments into the US technology industry and risks infuriating China.
The deal deepens the Trump administration's ties with Taipei at a critical time, as China ramps up pressure on the island and Washington seeks to avoid an all-out trade war with Beijing.
Under the long-negotiated agreement, Taiwanese chipmakers such as TSMC that expand production in the US will receive a lower tax rate on semiconductors they import into the country.
The US will also lower a set of broad tariffs that apply to most other Taiwanese exports to the US from 20 per cent to 15 per cent.
Generic pharmaceuticals, aircraft components and "unavailable natural resources" will face a zero per cent tariff, the Commerce Department said.
In exchange, Taiwanese technology companies, including TSMC, will make investments totalling at least US$250 billion to increase production of semiconductors, energy and artificial intelligence in the United States.
This includes US$100 billion already committed by TSMC in 2025, with more to come, according to US Commerce Secretary Howard Lutnick.
Taiwan will also guarantee another US$250 billion in credit to support additional investments, the Trump administration said.
The increase in chip production is expected to generate more business for TSMC's major suppliers, including chip manufacturing toolmakers such as ASML, Lam Research and Applied Materials.
It should also benefit smaller materials suppliers such as Sumitomo Corp and DuPont spinoff Qnity Electronics.
Many of these firms have long maintained a presence in Arizona due to Intel's major operations there, but have expanded facilities following TSMC's arrival.
Shares of chipmaker Nvidia, which relies on TSMC for manufacturing, rose more than two per cent, retaining most of its gains earlier in the day.
TAIWAN'S SEMICONDUCTOR POWERHOUSE SET TO EXPAND IN US
Under the agreement, chipmakers that expand operations in the US will be allowed to import up to 2.5 times their new capacity of semiconductors and wafers without additional tariffs during an approved construction period, with preferential treatment for chips that exceed that quota.
Meanwhile, chipmakers that have already built production plants in the US will be able to import 1.5 times their new US production capacity without paying extra tariffs.
US President Donald Trump on Wednesday imposed a 25 per cent tariff on certain AI chips, such as Nvidia's H200 AI processor, but left most other chips untouched for now.
TSMC, which reported a forecast-smashing 35 per cent jump in fourth-quarter profit earlier on Thursday, is accelerating an ongoing expansion to meet demand in both Taiwan and Arizona. In Arizona, chief executive C.C.
Wei said the company is applying for permits to begin construction on a fourth factory and its first advanced packaging plant. The company has also purchased additional land in the state, he told a press briefing.
TSMC's US-listed shares rose five per cent following its earnings announcement. Taiwan has offered to help the US replicate the island's success in building technology clusters around dedicated science parks.
In the United States, efforts to develop such clusters have faced labour and skills shortages.
Tariffs on auto parts, timber, lumber and wood products from Taiwan will be capped at 15 per cent under the deal. The agreement is subject to review by Taiwan's parliament, Taipei has said.
The US Supreme Court is expected to rule soon on the president's authority to impose broad tariffs without congressional approval.
It remains unclear how the Taiwan deal or other trade agreements struck by Trump would be affected if the court rules that many tariffs are unconstitutional.