A new deal calls for Taiwan's chip-making companies to invest and build in the United States. In return, Washington will lower the tariff on Taiwanese goods to 15% from a previous 20%.

Washington and Taipei reached a trade deal late on Thursday that involves lower tariffs on Taiwanese exports and direct new investments in the US technology sector.

The agreement will "drive a massive reshoring of America's semiconductor sector," the US Commerce Department said.

In an interview to news channel CNBC, US Commerce Secretary Howard Lutnick said the objective was to bring 40% of Taiwan's entire chip supply chain and production to the United States. Had Taipei not agreed to manufacture in the US, the tariffs would likely be 100%, Lutnick added.

The deal between Taiwan and the US is likely to draw ire from China which counts the island as part of its own territory and has often criticized Washington for undue influence there. Taiwan significantly counts on Washington as an ally to counter China.

Semiconductors — a key component in the automobile industry as well as defense and artificial intelligence — were invented in the US and remain one its main export products. However, some of the most cutting-edge chips are manufactured in Taiwan.

"Look, they need to keep our president ​happy, right," Lutnick told CNBC, referring to Taiwan. "Because our president is the key to protecting their country."

What Does the US-Taiwan Deal Include?

Under the long-negotiated deal, the US will lower tariffs on Taiwanese goods to 15% from the previous 20%, which was meant to address the US trade deficit.

Tariffs on sectors like auto parts, timber and lumber will be capped at 15% while generic pharmaceutical products and certain natural resources will see no duties, the Commerce Department added.

Taiwanese chip and tech businesses will make "new, direct investments totaling at least USD250 billion" in the US to expand capacity in advanced semiconductors and artificial intelligence.

This includes the USD100 billion Taiwan-based chipmaker TSMC committed in 2025, Lutnick said.

"We're going to bring it all over so we become self-sufficient in the capacity of building semiconductors," he said.

Taiwan will guarantee an additional USD250 billion in credit to facilitate further investment in the US, the Trump administration said, adding that Taiwanese producers who invest in the US will also be treated more favorably for future semiconductor duties.

What Did Taiwan Say?

Taiwanese Vice Premier Cheng Li-chun told reporters the "unique" tariff deal will be signed after it is sent to Taiwan's parliament. She said Taipei hoped to become close strategic partners with the US.

As for producing chips in the US, Cheng said: "This is not about moving industry out of Taiwan. Our tech industry is already an international one."

Taiwan's current planning would leave the country the world's most important producer of AI semiconductors, "not only for Taiwanese companies, but globally," Economic Affairs Minister Kung Ming-hsin said, adding that production capacity would be split about 85%-15% between Taiwan and the United States by 2030 and 80%-20% by 2036.