The United States and Taiwan formalized a significant trade and investment agreement on January 15, 2026, establishing a new framework for bilateral economic relations.
The deal creates a 15% cap on reciprocal tariffs for Taiwanese exports—a move designed to stabilize trade costs amid rising US protectionism—while securing a massive US$500 billion capital commitment from Taiwan to bolster US manufacturing.
While the agreement text outlines the mechanisms for tariffs and investment, recent comments from US Commerce Secretary Howard Lutnick provide essential context regarding the US administration's strategic objectives.
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Part I: The Terms of the Agreement
The agreement is built on two primary pillars: tariff stabilization for Taiwan and industrial investment for the US.
The "15% Solution" To mitigate the impact of the US Reciprocal Trade Act, the two sides agreed to cap reciprocal tariffs on Taiwanese goods at 15%.
Status: The Taiwan Executive Yuan confirmed that this rate will not stack with existing Most Favored Nation (MFN) rates. This effectively places Taiwan in a "Most Favored Ally" bracket, comparable to the treatment of Japan, South Korea, and the EU.
Scope: In addition to the broad 15% cap, specific protections were negotiated for Section 232 tariffs. Auto parts, timber, and wood products will also be capped at 15%, while generic pharmaceuticals and aircraft components will enjoy a 0% reciprocal tariff.
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The Semiconductor "Taiwan Model": A unique quota system was established for the semiconductor sector to address US national security concerns (Section 232). This "Taiwan Model" links duty-free access directly to US investment milestones:
• Construction Quota: Companies building new US capacity can import up to 2.5 times their planned capacity duty-free.
• Production Quota: Once operational, companies can import 1.5 times their US production volume duty-free.
The Investment Commitment: In parallel, Taiwan has committed to a total economic package valued at roughly US$500 billion:
• US$250 Billion Direct Investment: Targeted at the US semiconductor, AI, and energy sectors.
• US$250 Billion Credit Guarantees: Government-backed financing to assist the broader supply chain ecosystem in expanding US operations.
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Part II: Context and Signals from Washington
While the agreement provides legal certainty, the statements made by Commerce Secretary Howard Lutnick in the hours surrounding the signing offer insight into the US administration's policy stance. These comments highlight the pressure points that shaped the negotiations.
1. The Alternative Scenario: In an interview with CNBC, Secretary Lutnick noted the stark alternative to this agreement. He remarked that without a commitment to "build in America," Taiwanese imports could have faced tariffs as high as 100%.
• Analysis: This comment suggests the 15% rate serves as a floor for market access. It indicates that the US views the tariff reduction not as a standard trade concession, but as a conditional benefit tied to industrial cooperation.
2. The "40%" Target Lutnick articulated a clear metric for success: the US aims to migrate 40% of Taiwan's semiconductor capacity to American soil within the current presidential term.
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• Analysis: This specific target explains the logic behind the "2.5x / 1.5x" quota system. The structure is designed to incentivize capacity migration, making US expansion a prerequisite for maintaining large-scale export access.
3. Expansion of US Facilities The Commerce Secretary also confirmed that TSMC has acquired additional land adjacent to its Arizona site, suggesting a potential "doubling" of the project's scale.
Analysis: This aligns with the US$250 billion direct investment figure, confirming that major capital projects are already in the pipeline to meet the agreement's terms.
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Part III: What to Watch
As this agreement moves from signing to implementation, three key areas require close observation:
• Implementation of the "Credit Guarantee": How will the US$250 billion in credit guarantees be utilized by Taiwan's small and medium-sized enterprises (SMEs)? The challenge will be whether mid-tier suppliers can afford the higher operating costs in the US, even with financing support.
• The "Production" Definition: The "Taiwan Model" allows duty-free imports based on "1.5 times US production capacity." The strict technical definition of "production" (e.g., front-end wafer starts vs. back-end packaging) will be critical in determining how many chips can actually enter the US tariff-free.
• Market Share Shift: With the 40% migration target explicitly stated, observers will need to track whether this leads to a "hollowing out" effect in Taiwan's domestic ecosystem, or if it results in a successful expansion of Taiwan's global footprint as intended by the Executive Yuan.
Credit: Digitimes
Credit: Digitimes
Article edited by Jack Wu
