According to three sources familiar with the matter, the Trump administration is finalizing a trade deal with Taiwan that would lower tariffs on Taiwanese exports and prompt TSMC, Taiwan's largest chipmaker, to significantly increase its investment in the United States.

The agreement, negotiated for months, is undergoing legal review and is expected to be announced this month. Sources familiar with the matter said the agreement would reduce U.S. tariffs on goods from island nations to 15%, roughly in line with the tariffs imposed on imports by Asian allies Japan and South Korea, with whom an agreement was reached last year.

As part of the agreement, TSMC will also commit to building at least five new semiconductor fabs in Arizona, roughly doubling its number of plants in the state, according to sources. The specific timeline for these investments is unclear. A TSMC spokesperson declined to comment.

Since announcing tariffs on dozens of trading partners in April, the Trump administration has been negotiating with these partners to lower tariffs in exchange for investment commitments and deals aligned with U.S. national security priorities. South Korea and Japan have already pledged hundreds of billions of dollars to invest in U.S. shipbuilding, nuclear energy, electronics, and critical minerals. 

The Trump Administration's Vision

The Trump administration wants Taiwan to increase its investment in the U.S. semiconductor manufacturing industry. Taiwan dominates global chip production, and chips are core components of computers and artificial intelligence data centers.

TSMC, the world's leading chipmaker, has built a factory in Arizona since 2020; a second factory is under construction and will begin production in 2028; and it has pledged to build four more factories in the coming years. However, as part of US-Taiwan trade negotiations, TSMC has agreed to build at least five more factories.

Neither the Office of the United States Trade Representative nor the Department of Commerce has commented on this.

Trade negotiations with Taiwan have been stalled, with both sides arguing over tariffs. In recent months, the Trump administration announced limited trade arrangements with several countries in an attempt to reshape US trade relations. Mr. Trump briefly imposed "reciprocal" tariffs globally in April, then suspended them, and reimposed them in August.

Since then, Taiwanese importers have been subject to a 20% tariff when shipping goods into the United States. However, the US government exempted semiconductors and many electronic products from the tariffs, stating that these industries would be subject to national security tariffs levied separately under a law called Section 232.

The Trump administration has also used national security laws to impose tariffs on steel, aluminum, automobiles, copper, lumber, and other goods. A Section 232 investigation into the semiconductor industry, led by the Commerce Department, was originally scheduled to begin last year. This has sparked speculation that the Trump administration's delay in advancing the investigation stems from concerns about jeopardizing agreements with China.

Potential tariffs on chips pose a direct threat to Taiwan and TSMC. Semiconductors account for more than a third of Taiwan's total exports, with the most valuable chips coming from TSMC's more than 20 factories across Taiwan.

The Taiwanese government had previously concluded trade negotiations with the Office of the U.S. Trade Representative, but continued consultations with the U.S. Commerce Department regarding Section 232 tariffs and TSMC's investment plans in Taiwan. These consultations only recently concluded, coinciding with TSMC's acquisition of another plot of land in Arizona for expansion.

Government officials have stated that companies investing in Taiwan will not be subject to Section 232 tariffs, but it remains unclear how this arrangement will operate.

Taiwanese officials declined to comment. On December 26, Taiwan's Trade Office stated in a press release that both sides had reached a broad consensus on a trade agreement that would include U.S. tariff reductions on Taiwan and granting Taiwan preferential treatment under Section 232 of the Trade Act.

The office stated that earlier this year, a trade agreement was not reached because U.S.-Taiwan trade was primarily focused on the semiconductor sector, and semiconductor tariffs were still subject to change. 

TSMC will further increase its investment in the United States

TSMC announced in March last year that it would increase its investment in the United States by $100 billion, the largest investment by a Taiwanese company in the US in history. Foreign media reported that US Commerce Secretary Rutnick recently revealed in an interview that after the Trump administration took office last year, it used the violation of the DEI (Diversity, Fairness, and Inclusion) clause in the contract as grounds for TSMC to increase its investment by $100 billion, and that TSMC would further increase its investment.

TSMC is currently in a pre-early-night period and will not comment on any related reports. TSMC's stock price was unaffected by the related news yesterday (12th), continuing its upward trend, once matching its historical high of NT$1,705, and finally closing at NT$1,690, up NT$10, increasing its market capitalization to NT$43.83 trillion. However, foreign investors sold more than 10,000 shares of TSMC yesterday, marking the seventh consecutive trading day before the earnings call, with a cumulative net sell of approximately 59,000 shares.

In March of last year, TSMC announced an additional $100 billion in investment in the United States, bringing its total investment in the US to $165 billion, in addition to its original plan of $65 billion.

Last week, Lutnick, in an interview with the popular podcast All-in Podcast, again mentioned TSMC. He criticized the chip and science act (the chip act) under former US President Biden's administration for its unreasonable subsidies, asking, "Why give TSMC $6 billion? Its market value is $1 trillion."

Former US President Biden signed the chip act in 2022, allocating $52.7 billion to promote US semiconductor chip development and providing billions of dollars in subsidies to global semiconductor giants to attract them to set up factories and invest in the US, such as TSMC, South Korea's Samsung and SK Hynix, and the US's Intel and Micron.

At the end of last year, the US Department of Commerce announced subsidies of up to $6.6 billion to help TSMC build three wafer fabs in Arizona. Lutnick pointed out that Trump's approach during his second term was to threaten tariffs, which prompted TSMC to agree to set up factories in the US.

Lutnick said the Trump administration also told TSMC, "You have a contract with 20 pages of DEI clauses," requiring the hiring of a blind contractor and transgender and lesbian engineers. However, all of Taiwan's exposure machine engineers are male, not to mention their sexual orientation, which constitutes a violation of the DEI clause.

Lutnick pointed out that many people thought Republicans would simply tear up the DEI clauses in the contract, "but we are not those Republicans." After reviewing the contract, the Trump administration pointed out TSMC's violations of the DEI clauses, such as failing to set up a childcare center on the factory grounds.

He said that because TSMC had breached the contract first, the US offered a condition that if TSMC could increase its investment in the US by hundreds of billions of dollars to build a factory, the breach could be cancelled. An agreement was reached, and the factory, with an investment of $165 billion, is now under construction.

Lutnick did not specify the amount of TSMC's increased investment, only saying, "I will let TSMC announce it themselves; their investment will be even higher."

Source: Compiled from The New York Times