Taipei: The United States has agreed to lower tariffs on Taiwanese goods from 20 percent to 15 percent, as announced by Taiwan's Executive Yuan. This decision comes without stacking the tariffs on existing most-favored-nation (MFN) rates, signaling a significant development in trade relations between the two nations.

According to Focus Taiwan, the trade negotiations concluded on Thursday, and the agreement grants semiconductors and related products the most favorable treatment under Section 232 of the Trade Expansion Act. The deal also includes commitments to expand supply chain investment cooperation and deepen strategic collaboration on artificial intelligence.

The new tariff rate aligns with U.S. rates on goods from major trade partners such as Japan, South Korea, and the European Union. As part of the agreement, Taiwanese companies in sectors like semiconductor manufacturing, electronics, AI, and energy have committed to investing US$250 billion in the U.S. The Taiwanese government has also agreed to provide up to US$250 billion in credit guarantees to support these investments.

The New York Times reported that Taiwan Semiconductor Manufacturing Co. (TSMC) plans to build at least five more fabs in exchange for the tariff reduction. TSMC's CEO, C.C. Wei, indicated that the company is accelerating its capacity expansion in the U.S.

With this agreement, Taiwan becomes the first country to secure the most favorable treatment for its semiconductor suppliers, which is expected to reduce uncertainties for its local industry. The U.S. has pledged to grant favorable status to Taiwanese semiconductor firms for importing raw materials and components needed for U.S. operations.

The "Taiwan model," as recognized by Washington, allows Taiwanese companies to invest in the U.S. based on their plans, facilitating their integration into the U.S. supply chain. Taiwan holds the sixth largest trade surplus with the U.S., with a significant portion from semiconductors and electronic components.

The U.S. Commerce Department described the arrangement as a "historic trade deal" that will enhance America's semiconductor sector, create high-paying jobs, and bolster national security. The tariff reduction to 15 percent on Taiwanese goods is also expected to enhance the competitiveness of Taiwan's non-tech sectors.

Taiwan has secured the most favorable treatment for products like auto parts, wooden furniture, and aircraft components under Section 232, and both nations have agreed to establish a negotiation mechanism under this section.