Few issues provoke U.S. President Donald Trump more than America’s trade deficits, a point of tension that matters for Taiwan given its significant surplus with the United States.
The Trump administration first moved on what it calls reciprocal tariffs in early April, announcing on April 2 that it would impose a 32% tariff on Taiwanese imports — far higher than officials in Taipei had anticipated. Washington justified it as a response to Taiwan’s sizable trade surplus of US$74 billion in 2024. A week later, on April 9, the United States decreased the rate to 10% for most countries, including Taiwan, to give governments time to negotiate agreements with the White House.
On April 11, the administration then carved out broad exemptions for key technologies, such as smartphones, computer components, and servers. The reciprocal tariff for Taiwan was ultimately set at 20% in early August, and Taiwanese officials led by Vice Premier Cheng Li-chiun have continued to negotiate with their U.S. counterparts in hopes of securing a lower rate.
During these negotiations, Washington is understood to have raised concerns about the tariff and non-tariff barriers that Taiwan imposes on American goods. Taiwan levies a 17.5% tariff on imported passenger vehicles and double-digit duties on several agricultural products. It also maintains import quotas for rice and requires labeling on certain consumer goods in ways U.S. officials say unfairly affect the market in Taiwan for American pork and beef, according to Riley Walters, a senior fellow at the Hudson Institute.
Darson Chiu, director general of the Confederation of Asia-Pacific Chambers of Commerce and Industry, says he expects the United States to press Taiwan to further open its rice market. Such a move would be politically unpopular given the influence of Taiwan’s farming community, says Hsu Wen-tai, a research fellow with Academia Sinica’s Institute of Economics.
In most cases, Trump has imposed the so-called reciprocal tariffs on other countries by invoking the International Emergency Economic Powers Act (IEEPA), a law granting the president broad authority to take immediate action against “unusual and extraordinary” threats. He has argued that America’s trade imbalances constitute such a national security threat and has deployed the tariffs as a tool to address them.
In addition to the reciprocal tariffs, the United States has imposed a separate set of sectoral duties under the Trade Expansion Act of 1962, following Section 232 national-security investigations. By early May under these measures, Washington had levied a 25% tariff on cars and auto parts for many countries. Most countries were hit with a 50% tariff on steel and aluminum in June, followed by a 50% duty on copper and certain copper derivatives by August.
These measures are layered on top of one another. Chen Min-teh, secretary-general of the Taiwan Transportation Vehicle Manufacturers Association, which represents automakers and parts suppliers, notes that Taiwanese auto-parts shipments are subject to both the 20% charge and the 25% Section 232 duty. The United States has also opened a Section 232 investigation into semiconductors, though the outcome remains unclear.
In May, the New York-based Court of International Trade ruled that the reciprocal tariffs imposed on most nations were unlawful. Three months later, the U.S. Court of Appeals for the Federal Circuit rejected Trump’s argument that the IEEPA allowed him to impose such levies, finding that tariff-setting is a core Congressional authority and falls outside the president’s mandate. Trump has since asked the Supreme Court to overturn the decisions. The justices are now considering the case, and the outcome remains uncertain. In the meantime, Taiwan’s 20% reciprocal tariff remains in effect.
If the Supreme Court ultimately strikes down the reciprocal tariffs, economists say it would not amount to a sweeping rebuke of Trump’s trade agenda. Instead, they expect the administration to lean more heavily on Section 232 investigations, which could provide a separate legal basis for imposing additional tariffs.
“The likelihood is that they will resort to more sectoral tariffs,” says Bum Ki Son, a senior regional economist at Barclays.
Chip on shoulder
A major sticking point in the negotiations is Washington’s push for Taiwan to commit to a large new investment package in the United States. Reports suggest U.S. officials want Taipei to match earlier pledges by South Korea and Japan, implying a commitment of US$350 billion to US$550 billion.
Such a demand requires Taiwan to redirect significant capital — and possibly production — overseas. Taiwanese officials have pushed back, insisting any investment must follow a “Taiwan model” driven by companies, not governments.
The politics are sensitive. A surge in outward investment, especially in semiconductors, could raise questions about the impact on Taiwan’s domestic industry. Opposition lawmakers might charge that the government is conceding too much for lower tariffs. Analysts also note that while Japan and South Korea accepted similar deals under different circumstances, Taiwan’s smaller, export-dependent economy could feel the effects more quickly and acutely.
Taipei has made clear that it intends to keep its most advanced semiconductor R&D at home, viewing it as a core element of national security. Officials argue that other countries are more likely to aid Taiwan in the event of a Chinese attack if any disruption would threaten global chip production.
“We do believe that how the semiconductor tariffs play out will be one of the key factors in determining Taiwan’s growth outlook,” says Son. He notes that setting tariffs on semiconductors will be complex and involve many gray areas as they have a complex supply chain involving designs and components from all over the world. “The likelihood is that there will be a blanket 10% to 15% semiconductor tariff by country,” he says.
Ma Tieying, a senior economist at DBS, says that the United States ultimately depends on foreign partners to sustain its AI ambitions — and needs countries like Taiwan to continue investing in semiconductor fabs on American soil. A semiconductor tariff is likely to be announced soon, she says, though she expects Washington to grant certain exemptions.