Taiwan-US tariff deal signals new phase in Taiwan’s security

Taiwan and the United States have finalized their tariff negotiations, with Taiwan securing a reciprocal 15% tariff rate that will not be stacked on top of Most-Favored-Nation (MFN) tariffs and becoming the first country in the world to receive preferential treatment from the United States under Section 232.

In return, Taiwan agreed to make two types of investments in the United States and to cooperate with the US local industrial supply chain through a “Taiwan model.”

The first type of investment consists of US$ 250 billion in independent investments by Taiwanese companies, covering areas such as semiconductors, AI applications and other electronics manufacturing services (EMS), energy, and other industries. The second type involves support from the Taiwanese government in the form of credit guarantees, enabling financial institutions to provide up to US$ 250 billion in corporate credit.

The agreement also covers other issues, including non-tariff trade barriers, trade facilitation, economic security, labor protections, environmental protection, commercial opportunities, and two-way investment.

A 60-40 split?

During a CNBC interview on Jan. 15, US Commerce Secretary Howard Lutnick said that Taiwan has made two commitments, with US$ 250 billion coming from Taiwanese companies and another US$ 250 billion from the government to help small and medium-sized enterprises move their supply chains to the United States. 

He added that the US objective is to relocate 40% of Taiwan’s supply chain and production to the United States, and that this is a goal to be pursued during President Trump’s term.

Taiwan’s economic security under the deal

Professor Liu Fu-kuo (劉復國), Director of the Taiwan Center for Security Studies at National Chengchi University, told TCN that from the perspective of overall national security, the outcome of this round of negotiations involves industrial and economic security.

Professor Liu said that in the short term the impact on Taiwan tends to be stabilizing, as once tariffs are confirmed, the overall industrial sector, including small and medium-sized enterprises, can breathe a sigh of relief because Taiwan’s exports are unlikely to be affected for some time, unlike the fluctuations seen in the recent past.

However, Liu added that from an economic security perspective, greater concern lies in the second phase, namely the medium to long term outlook, as the gradual investment of major Taiwanese semiconductor companies in the US could have a significant impact and alter Taiwan’s industrial structure over time.

Dr. Wang Hung-jen (王宏仁), Professor in the Department of Political Science at National Cheng Kung University, believes that Lutnick’s remarks should be taken as a reference rather than a certainty.

Wang told TCN that the idea of transferring 40 percent of capacity may be a stated objective, but achieving it in practice would not be simple.

He explained that semiconductor investment in the US does not necessarily mean industrial relocation, because corporate headquarters would remain in Taiwan, and much of the core and critical data and knowledge would continue to be retained at headquarters in the Hsinchu Science Park.

Wang noted that Taiwan follows a policy of keeping key technologies from being transferred overseas, meaning that while factories may be built in the United States, critical technologies would remain in Taiwan.

Silicon shield

When Taiwan’s security is discussed, the concept of the “silicon shield” is often mentioned. It refers to Taiwan’s critical position in the global semiconductor industry, where the heavy reliance of many countries on Taiwan’s chip supply indirectly creates a strategic buffer that helps protect Taiwan’s security.

According to the International Trade Administration of the US, Taiwan is a key part of the global semiconductor supply chain, producing over 60% of the world’s chipmaking revenue and more than 90% of the most advanced chips.

Professor Liu said that regardless of the circumstances, China would not refrain from taking aggressive actions because of Taiwan’s “silicon shield” or TSMC, and in his judgment, Beijing’s decisions are unlikely to be directly linked to TSMC.

Liu also noted that as Taiwan’s industrial structure shifts in the medium to long term, the influence of Taiwan’s semiconductor industry could gradually decline.

Professor Wang said that the argument that the United States would protect Taiwan solely because TSMC or the semiconductor industry remains in Taiwan may underestimate Taiwan’s own strategic weight.

Wang further explained that the US 2025 National Security Strategy clearly states that while Taiwan’s semiconductor industry and TSMC are important, what truly matters is Taiwan’s position in the first island chain.

Wang believes that Taiwan’s security ultimately comes down to its geopolitical position in the first island chain, which is the key factor for the US, as Taiwan can serve as a strategic point to constrain China.

Taiwan and US relations

With the Taiwan-US tariff negotiation finalized, experts believe that relations between Taiwan and the United States will move in a positive direction.

Professor Liu said it can be expected that Taiwan and the United States will maintain relatively stable relations, and at least during President Trump’s term, a more stable relationship can be anticipated.

Professor Wang has a similar view, saying that the conclusion of the Taiwan-US tariff negotiations will help political interactions between the two sides develop in a positive direction.

However, Professor Liu also expressed that President Trump is expected to visit China in April this year, and close attention should be paid to how Trump and Xi Jinping (習近平) discuss the Taiwan issue at that time.

Impact on Taiwan’s local politics?

2026 is a local election year in Taiwan, and with the Taiwan U.S. tariff negotiations concluded, Vice Premier Cheng Li-chiun (鄭麗君), who led Taiwan’s negotiating team, has been named by the media as a potential Democratic Progressive Party (DPP) candidate to challenge incumbent Taipei Mayor Chiang Wan-an (蔣萬安).

Professor Wang said that the DPP will certainly want to field its strongest possible candidate, so if the party assesses Cheng Li-chiun as the best choice, that would be reasonable, but it will depend on how the party decides to put forward its strongest candidate.

As Taipei is the capital, its mayor typically gains high national visibility during their term and is often seen as using the position as a stepping stone toward a presidential run. If Cheng were to run for Taipei mayor, it could further reshape Taiwan’s political landscape.