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US, Taiwan finalize deal to cut tariffs, boost purchases of American goods

February 13, 2026 4 min read International Relations Economics GS Paper 2 (International Relations) GS Paper 3 (Indian Economy External Sector)
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What Happened

  • The US and Taiwan signed a reciprocal trade agreement reducing US tariffs on Taiwanese goods from 20% to 15%, placing Taiwan on equal footing with South Korea and Japan.
  • Taiwan committed to purchasing approximately $85 billion worth of US goods (2025-2029), including $44.4 billion in LNG and crude oil, $15.2 billion in civil aircraft and engines, and $25.2 billion in power grid and steelmaking equipment.
  • Taiwan agreed to eliminate or reduce 99% of its tariff barriers, including immediate removal of tariffs of up to 26% on US agricultural imports (beef, dairy, corn).
  • The effective average tariff rate on Taiwanese goods, including various carve-outs, is expected to be approximately 12.3%.
  • The deal shields Taiwan's critical semiconductor exports from the most punitive US tariff measures.

Static Topic Bridges

US Trade Policy Under Reciprocal Tariffs

The current US administration has aggressively deployed tariffs as a tool of economic statecraft, imposing "reciprocal" tariffs on major trading partners. The approach seeks to reduce the US trade deficit, bring manufacturing back to America, and leverage market access as diplomatic currency.

  • The US has imposed differential tariff rates through bilateral negotiations: China faces the highest rates, while allies like Japan, South Korea, and now Taiwan have negotiated lower rates of 15%.
  • Section 301 (Trade Act of 1974) and Section 232 (Trade Expansion Act of 1962) provide the legal basis for these tariffs.
  • The US trade deficit was approximately $773 billion in 2024, with China, the EU, and Asian economies as major contributors.
  • India faces a 26% reciprocal tariff (reduced from an initial 27% in the interim trade framework), significantly higher than the 15% rate offered to East Asian allies.

Connection to this news: The Taiwan deal illustrates the tiered structure of US reciprocal tariffs, where security allies in the Indo-Pacific receive preferential terms, with implications for India's own tariff negotiations with Washington.

Taiwan's Semiconductor Dominance and Global Supply Chains

Taiwan produces over 60% of the world's semiconductors and more than 90% of the most advanced chips (sub-7nm), primarily through Taiwan Semiconductor Manufacturing Company (TSMC). This makes Taiwan a linchpin of global technology supply chains and gives it unique leverage in trade negotiations.

  • TSMC alone accounts for approximately 54% of the global semiconductor foundry market.
  • The US CHIPS and Science Act (2022) allocated $52.7 billion to boost domestic semiconductor manufacturing, partly to reduce dependency on Taiwan.
  • TSMC is building fabrication plants in Arizona (US) and Kumamoto (Japan) to diversify geographically.
  • Semiconductor supply chain disruptions (as seen during COVID-19) can cascade across automotive, consumer electronics, and defence industries globally.
  • India is developing its semiconductor ecosystem through the India Semiconductor Mission (ISM) with $10 billion in incentives.

Connection to this news: Taiwan's semiconductor dominance gave it significant bargaining power in the tariff negotiations, resulting in favourable terms that protect its most critical exports, a dynamic relevant to understanding how technological leverage shapes trade outcomes.

Indo-Pacific Trade Architecture and India's Position

The Indo-Pacific region has seen a proliferation of trade agreements and economic frameworks, including the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Indo-Pacific Economic Framework (IPEF). India has opted out of RCEP and CPTPP but participates in IPEF.

  • RCEP (15 countries, effective 2022) is the world's largest trade bloc by GDP, covering approximately 30% of global GDP; India withdrew during negotiations in 2019 over concerns about Chinese goods flooding its market.
  • IPEF (launched 2022) includes 14 Indo-Pacific nations and focuses on supply chain resilience, clean energy, and fair trade but does not include tariff commitments.
  • India's bilateral trade with Taiwan was approximately $8.5 billion in 2024-25, with a growing focus on semiconductor and electronics cooperation.
  • The US-Taiwan deal may influence India's own tariff negotiations, as Washington could seek similar purchase commitments from India.

Connection to this news: The US-Taiwan trade deal reshapes the tariff landscape of the Indo-Pacific, establishing benchmarks that will influence India's own trade negotiations with the US and its strategic calculations about joining or staying outside regional trade agreements.

Key Facts & Data

  • US tariff on Taiwanese goods reduced from 20% to 15% (effective average: 12.3% with carve-outs).
  • Taiwan's purchase commitments: $85 billion total (2025-2029) in US energy, aircraft, and equipment.
  • Taiwan produces over 60% of global semiconductors and 90%+ of advanced chips (sub-7nm).
  • TSMC holds approximately 54% of the global semiconductor foundry market.
  • Taiwan eliminates tariffs of up to 26% on US agricultural products (beef, dairy, corn).
  • India withdrew from RCEP in 2019; participates in IPEF but without tariff commitments.
  • India faces a 26% US reciprocal tariff, compared to Taiwan's 15%.