U.S. Cuts Tariffs on Taiwan, China in New Trade Agreement
On January 15, 2026, the United States announced that it had reached a trade agreement with Taiwan, China, lowering reciprocal tariffs on most exports from Taiwan, China and aligning overall tariff levels with those applied to key U.S. allies, including the European Union, Japan, and South Korea.
Under the agreement, the United States will reduce reciprocal tariffs on the majority of Taiwanese goods from 20% to 15%. Total tariffs will be capped at 15%, with no additional stacking of most-favored-nation (MFN) duties. For products whose MFN tariff rate in the first tariff column is 15% or higher, the additional reciprocal tariff will be set at zero. For goods with MFN rates below 15%, the reciprocal tariff will be calculated as the difference between 15% and the existing MFN rate, ensuring the combined tariff does not exceed the 15% ceiling.
Sector-Specific Tariff Relief
Several strategic sectors will benefit from further tariff reductions. Tariffs on generic pharmaceuticals and their raw materials, aircraft components, and certain 'unavailable natural resources' will be reduced to zero. In addition, industries such as auto parts, timber, wood products, and wood-derived materials will avoid elevated tariffs under Section 232 of U.S. trade law, with duties capped at 15%.
The latest cuts mark a further easing from earlier measures imposed under former President Donald Trump, who initially raised tariffs on Taiwanese goods to 32% before lowering them to 20%. The current reduction is the result of negotiations, during which Taiwan signaled its commitment by expanding investment in the United States through companies including Taiwan Semiconductor Manufacturing Company (TSMC).
$500 Billion Investment and Credit Commitment
As part of the framework, Taiwanese semiconductor and technology firms, led by TSMC, have committed to at least $250 billion in new direct investment in the United States to build and expand advanced semiconductor, energy, and artificial intelligence manufacturing and innovation capabilities. This figure includes approximately $100 billion to $165 billion previously pledged by TSMC, such as its semiconductor manufacturing projects in Arizona, with the remaining investment to be delivered through new initiatives.
In parallel, Taiwanese authorities will provide at least $250 billion in credit guarantees to support supply chain expansion by these firms in the United States. Combined, the direct investment and credit guarantees bring the total commitment to $500 billion, aimed at reducing U.S. reliance on Taiwanese chip supplies and strengthening domestic production capacity.
Tariff Flexibility During Factory Construction
The agreement also provides tariff relief for Taiwanese semiconductor firms during the construction of new U.S. facilities. While plants are under construction, companies will be permitted to import products equivalent to 2.5 times their planned capacity without paying tariffs. Once facilities are operational, firms will be allowed to import volumes equal to 1.5 times their U.S.-based production capacity.
Since 2020, TSMC has completed one wafer fabrication plant in Arizona and is currently building a second facility, scheduled to begin operations in 2028. The company has also committed to constructing four additional plants in the United States over the coming years.
U.S. Push for Supply Chain Relocation
The negotiations were led by U.S. Commerce Secretary Howard Lutnick. In an interview, Lutnick said that chipmakers headquartered in Taiwan that do not establish manufacturing operations in the United States could face tariffs of up to 100%.
According to Lutnick, the United States aims to shift 40% of Taiwan’s semiconductor supply chain to domestic production, transferring the necessary technologies to enable self-sufficiency in semiconductor manufacturing.