Taiwan last week finally reached a trade agreement with the US, reducing tariffs on Taiwanese goods to 15 percent, without stacking them on existing levies, from the 20 percent rate announced by US President Donald Trump’s administration in August last year.
Taiwan also became the first country to secure most-favored-nation treatment for semiconductor and related suppliers under Section 232 of the US Trade Expansion Act.
In return, Taiwanese chipmakers, electronics manufacturing service providers and other technology companies would invest US$250 billion in the US, while the government would provide credit guarantees of up to US$250 billion to support Taiwanese firms that invest, the Executive Yuan said on Friday.
A 15 percent tariff without stacking levies brings Taiwan’s rate in line with those of Japan and South Korea, placing local non-tech sectors on an equal footing with theirs and making them more competitive. It is also lower than the 19 percent tariff that Thailand and Cambodia face, Vietnam’s 20 percent, not to mention China’s 47 percent.
Moreover, securing most-favored-nation treatment for many products in the first wave of Section 232 tariffs significantly mitigates the impact on non-electronics industries and greatly reduces policy uncertainty over a US probe into Taiwan’s semiconductor and information and communications technology industries.
Taiwan’s semiconductor and related electronics sectors would benefit the most under the latest trade deal. Based on the agreement, Taiwanese chipmakers investing in the US would be eligible for zero tariffs on their goods equivalent to 2.5 times their planned capacity under construction and 1.5 times their new capacity after completion.
Several non-electronics industries, such as makers of auto parts, machine tools, automation products, electrical equipment, wood furniture and aerospace components, would also benefit from the tariff reduction and the preferential Section 232 tariffs.
However, industries that have already relocated their production out of Taiwan, such as those that produce garments, footwear and curtains, would see no impact from the deal.
The agreement would also see US companies expand investment in Taiwan’s semiconductor, artificial intelligence, defense, drones, robotics, quantum technology and biotechnology industries, while Taiwanese companies, led by Taiwan Semiconductor Manufacturing Co, would be allowed to follow their own plans for investing in the US and entering the supply chains there based on the so-called Taiwan model.
As Washington’s intention is ultimately to build a semiconductor supply chain in the US, Taiwan could leverage its sizeable investment in the US to gain a security guarantee from Washington against a potential Chinese military invasion.
While US Secretary of Commerce Howard Lutnick, in an interview with CNBC last week, said that Washington’s goal is to bring 40 percent of Taiwan’s semiconductor supply chain and production capacity to the US, experts called it unrealistic, as establishing a substantial semiconductor supply chain in the US would take decades and could be extremely costly.
Taiwan needs to set up procedures and regulations to ensure that companies investing in the US are increasing their investments at home, too, so that the nation’s status as a global semiconductor production base would not be undermined and domestic industries would not be hollowed out.
The government’s trade negotiation team successfully leveraged Taiwan’s semiconductor prowess and the example of a “Taiwan model” to create a more favorable tariff structure for Taiwanese firms following months of relentless talks with Washington. The deal also helps reduce Taiwan’s security anxieties and maintain the nation’s sovereignty.
However, as local farmers and automakers, among others, are still worried that Taiwan might have to further open its domestic market as part of the trade deal, and fear that increasing imports of agricultural products and vehicles from the US, possibly with zero tariffs, could impact their livelihoods, the government needs to address the issue as soon as possible and inform the public once a formal Taiwan-US trade agreement is signed.
Instead of putting measures in place to support tariff-affected industries in the near term, the government must develop plans for accelerating their domestic upgrades in the medium to long term.
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