Key Points
- U.S.–Taiwan trade talks appear close to an agreement, but coordination on semiconductor cooperation remains challenging.
- Even if investment in the United States accelerates, Taiwan’s position as a hub for advanced chipmaking is unlikely to be eroded quickly.
- However, the April U.S.–China leaders’ summit could reshape the economic security environment around Taiwan and warrants close attention.
Why U.S.–Taiwan Trade Negotiations Are Stalling
Since the inauguration of the second Trump administration, uncertainty about international politics and the global economy have grown. Policies advanced under the banner of “America First” have increasingly come into tension with existing international rules.
A clear example is the use of additional tariffs—such as reciprocal tariffs—to protect U.S. industries, and the use of those tariffs as leverage to extract economic concessions. Many countries and regions, including Japan, have engaged in tough trade negotiations with the United States in an effort to minimize uncertainty and negative impacts. The same applies to Taiwan.
Since the announcement of reciprocal tariffs in April 2025, Taiwan has held a series of trade negotiations with the United States. On September 11, 2025, Secretary of Commerce Howard Lutnick told CNBC, a U.S. business news channel, “We’ve got a big deal coming with Taiwan.” This temporarily heightened expectations that a U.S.–Taiwan trade agreement was near. In addition, on December 26, 2025, Taiwan’s Office of Trade Negotiations, Executive Yuan, which is responsible for negotiations with the United States, explained that “broad consensus has already been reached” and that it aimed to deliver “concrete results” in January 2026.” However, as of January 9, 2026, the negotiations have yet to reach an agreement.
What Is Taiwan Seeking to Achieve?
Taiwan is seeking two outcomes.
First, it seeks a reduction in the reciprocal tariffs applied to Taiwan. Taiwan currently faces a combined rate: a 20 percent reciprocal tariff on top of the underlying most-favored-nation (MFN) tariff. The Lai Ching-te administration appears to be aiming to obtain, at a minimum, terms comparable to those granted to Japan. Japan’s terms work as follows: if the MFN rate is 15 percent or lower, only a 15 percent reciprocal tariff applies; if the MFN rate exceeds 15 percent, the MFN rate continues to apply. Within Taiwan’s industrial sector, the strongest calls for an early reduction in reciprocal tariffs have come from machine tool manufacturers that compete with Japan. In the U.S. market, Japanese machine tools face a 15 percent tariff, while Taiwanese products currently face 24 percent. In addition, as South Korea and the EU have reportedly secured terms similar to Japan’s, Taiwanese Phalaenopsis orchids and textile products are said to be at a disadvantage in the U.S. market.
Second, the Lai administration appears to be seeking treatment that does not place Taiwan at a disadvantage relative to other countries with respect to additional tariffs imposed under Section 232 of the Trade Expansion Act of 1962. Section 232 tariffs are imposed on national security grounds, and those already in force include tariffs on automobiles and auto parts. In principle, the Section 232 rate is 25 percent, with the MFN rate added on top. However, as a result of negotiations, Japan, South Korea, and the EU now face only a 15 percent tariff rate. By contrast, Taiwanese automobiles under negotiation are subject to high tariffs of 27 percent, and auto parts to 26.25 percent.
In addition, because the Trump administration is considering additional tariffs under Section 232 on semiconductors and derivative products (such as IT devices incorporating semiconductors), which underpin Taiwan’s exports, the Lai administration wants any additional tariffs to remain low and broadly comparable to those applied to other countries.
The Trump Administration’s Push to Reshore the Semiconductor Supply Chain
On the other hand, the Trump administration is seeking many things. Reports suggest the agenda includes greater market access in Taiwan (notably for agriculture and automobiles), trade facilitation, closer alignment on economic security, cooperation on U.S. natural gas development and expanded procurement, and broader supply-chain cooperation. Among these, what the Trump administration most strongly prioritizes is increased investment in the United States by Taiwan’s semiconductor industry and the relocation of the semiconductor supply chain to the United States.
The previous Biden administration also strongly sought investment in the United States by Taiwan’s semiconductor industry, but it approached the issue by using subsidies to attract investment. President Trump has taken a different approach. During the election campaign, he said that “They (Taiwan) did take about 100 percent of our (U.S.) chip business, I think Taiwan should pay us for defense.” He thus signaled a negotiating posture that links security and semiconductors. Once U.S.–Taiwan negotiations began, he has been urging Taiwan to expand semiconductor investment in the United States, while also hinting at the possibility of raising semiconductor tariffs on companies that do not invest in the United States.
Secretary Lutnick said he told Taiwan that it “needs to understand that producing 50 percent in the United States is essential.” In other words, the administration has set a goal of enabling the United States to cover 40–50 percent of domestic semiconductor consumption with domestic production in order to reduce national security risks, and it believes that achieving that goal requires having the entire semiconductor supply chain in the United States. It also argues to Taiwan that if the United States cannot produce semiconductors domestically for weapons systems, then even if a contingency occurs involving Taiwan, the United States would no longer be able to defend Taiwan.
Taiwanese semiconductor-related companies, for their part, have been planning and executing significant U.S. investment in response to requests from their customers—U.S. companies. The leading example is TSMC, which has announced a total U.S. investment plan of $165 billion. Mass production has already begun at its 4-nanometer plant in Arizona, and it expects to begin mass production at a 3-nanometer plant later this year. It is reported that once the investment plan is completed, 30 percent of TSMC’s advanced semiconductors will be produced in the United States. The Lai administration has also signaled support for transplanting to the United States the “Taiwan model” that supported the development of its semiconductor industry.
However, Taiwan’s Executive Yuan (equivalent to a cabinet) has stated that the idea of a 50-50 split is a U.S. concept only; Taiwan has made no such commitment and has no intention of agreeing to it. From these circumstances, it may be inferred that remaining differences over semiconductor cooperation—along with negotiations over potential Section 232 tariffs on semiconductors and related products —may be one reason the U.S.–Taiwan negotiations have yet to conclude.
The Outlook for U.S.–Taiwan Negotiations and Implications for Japan: Taiwan’s Indispensability as a Hub for Advanced Semiconductor Production Will Be Maintained
The outcome of U.S.–Taiwan trade negotiations is not a distant concern for Japanese companies.
One reason is that the results of the negotiations will change the competitive landscape—both for Japanese firms competing with Taiwanese companies in the U.S. market and for Japanese firms competing with U.S. companies in Taiwan. However, the impact does not end there.
Taiwan is Japan’s fourth-largest trading partner and accounted for 58.8 percent of Japan’s integrated-circuit (ICs) imports in 2024. The waters around Taiwan are also an extremely important sea lane for Japan. From an economic security perspective, Japan therefore has strong reason to watch the outcome closely.
There are concerns that, as a result of negotiations, U.S. investment by Taiwan’s semiconductor industry could accelerate industrial hollowing-out in Taiwan, and increase Taiwan’s economic and political vulnerability. However, the likelihood of that becoming reality appears low in the medium term. Even if part of semiconductor production is transferred to the United States, semiconductor production in Taiwan is expected to continue expanding for the following reasons.
First, although some currently warn of an AI bubble, the global semiconductor market is likely to expand over the medium to long term, driven by the growing adoption and continued development of AI, among other factors. . According to SEMI Japan, a semiconductor industry association, semiconductor sales between 2025 and 2030 are projected to grow from $700 billion to just over $1 trillion, at an average annual rate of 8 percent. Among these, sales of AI-related semiconductors—where TSMC has a strong competitive position—are said to grow at an average annual rate of 16 percent over the same period.
Second, as for the most advanced semiconductor manufacturing, it will likely take a long time for the United States—which faces challenges in areas such as the concentration of talent and suppliers—to become a substitute for Taiwan. TSMC has already begun mass production of 2-nanometer semiconductors in the fourth quarter of 2025 in Kaohsiung, and it has indicated a policy of further strengthening 2-nanometer production capacity in Kaohsiung and Hsinchu going forward. In addition, TSMC’s roadmap indicates that it will mass-produce next-generation “A16” semiconductors (the 1.6-nanometer generation) in 2026, and “A14” semiconductors (the 1.4-nanometer generation) in 2028. This is another reason why peace and stability in the Taiwan Strait will remain important for Japan’s economic security.
Close Attention Should Be Paid to the Direct and Indirect Impacts of the U.S.–China Leaders’ Summit on Taiwan
Even more important is how the U.S.–China leaders’ summit scheduled for April 2026 could affect Japan— through Taiwan.
President Trump is seeking a deal with China, and some observers expect U.S.–China tensions to ease. Indeed, there are moves that appear to anticipate this. For example, it was reported in December 2025 that the Trump administration would approve exports to China of NVIDIA’s “H200” AI chip, and that China was expected to authorize imports under certain conditions.
The impact on Taiwan of an easing of U.S.–China confrontation is complex. Taiwan is home to many IT-related firms that specialize in contract manufacturing, including TSMC, and the United States is an important customer for these companies. For example, 71 percent of TSMC’s revenue comes from North America (third quarter of 2025). If U.S.–China tensions ease and U.S. export controls on China are relaxed, Taiwanese firms—as well as Japanese suppliers linked to their supply chains—would likely benefit as U.S. customer companies expand their business with China.
On the other hand, there are concerns that the United States could strike a deal with China that sacrifices Taiwan’s security interests in exchange for economic gains. In such a scenario, skepticism toward the United States could grow within Taiwan, and some voices suggest that Taiwanese society might respond by shifting its political and economic orientation toward closer ties with China as a form of hedging. However, at present, this outcome appears relatively unlikely.
This is because, in the “National Security Strategy” of November 2025, the Trump administration recognizes Taiwan’s strategic value—as a semiconductor production base, a key geostrategic location, and a vital sea lane—and maintains its position that it does not support unilateral changes to the status quo in the Taiwan Strait. It also states that “deterring a conflict over Taiwan, ideally, by preserving military overmatch, is a priority.” In addition, the United States has not eased its caution toward China in sensitive-technology fields.
Taiwanese public opinion also shows that support for maintaining the status quo is around 90 percent and even combining those who favor “unification with China as soon as possible” with those who favor “maintaining the status quo, then unifying,” the share is only 7.2 percent (2025). As cross-strait economic relations are shifting from complementary to competitive, Taiwan’s business community has also heightened its vigilance about technology leakage compared with the past.
However, as noted above, President Trump also has a side that does not hesitate to weigh economic gains against security. Moreover, the “National Security Strategy” includes the word “ideally,” and it is not impossible to read it as leaving room for the possibility that, if deterrence can be achieved by other means, the effort to build military superiority could be somewhat weakened.
Conversely, if U.S.–China relations were to become tense again, given that U.S.–Taiwan trade negotiations include cooperation on economic security, Taiwan could further strengthen restrictions on economic exchange with China in a way that aligns with the United States.
In this way, the U.S.–China leaders’ summit, together with U.S.–Taiwan trade negotiations, could shape the economic security environment surrounding Taiwan. Japanese companies would therefore be well advised to closely monitor the direction of both negotiations.
* The content of this article represents the author’s personal views and does not represent the views of any organization, including the author’s affiliated organization.
(c)Alamy Stock Photo/amanaimages
