UBS Economics-APAC Economic Perspectives _Taiwan trade deal could promote...-119795054

ab16 January 2026Global ResearchAPAC Economic PerspectivesTaiwan: trade deal could promote further boom, growth upgradeA trade deal finally The American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States have signed a trade deal, according to a fact sheet released by the US Department of Commerce on January 15, 2026. Under this agreement, the headline reciprocal tariff rate applied to imports from Taiwan will be reduced to no more than 15%, down from the pre-deal level of 20%, and significantly lower than the initially announced rate of 32%. Taiwan is set to invest a total of USD 500 billion in the US: USD 250 billion as direct investment in areas such as advanced semiconductors, energy, and AI production, and USD 250 billion as a credit guarantee for the development of the semiconductor supply chain in the US.Lower tariff compared to most peers Importantly, the reciprocal tariff rate does not stack with the existing MFN tariff rate. This trade deal places Taiwan in the 15% reciprocal tariff group alongside Asian peers such as Japan and Korea, as well as the EU, which reached a similar agreement in earlier months. This tariff rate is lower than the 19% applied to most ASEAN peers and the additional 20% faced by mainland China under Trump 2.0 (on top of the 301 tariff). Globally, the two major exporters with a lower reciprocal tariff rate are the UK and Singapore, which face a 10% tariff rate.A trade deal is within our expectation…We previously argued that there was scope for a trade deal between the US and Taiwan, following a framework similar to US trade agreements with Japan, the EU, and Korea. Major elements include increased purchases of US products (autos, energy, agricultural goods, etc.), greater openness of domestic markets to the US, and more investment into the US. Therefore, a trade deal with a 15% tariff rate is not surprising.…but the details go beyondHowever, the details in the announcement exceeded our original expectations. The announcement does not include any purchase commitments by Taiwan, whereas US trade deals with Korea, the EU, and Japan all contained such commitments. For example, the initial agreement with Korea specified a USD 100 billion purchase commitment. On the other hand, Taiwan’s USD 500 billion headline investment commitment is larger than the USD 350 billion in the US-Korea deal and closer to the USD 550 billion in the US-Japan agreement, though the actual investment impact will depend on further details. Notably, the announcement addresses the Section 232 tariff on semiconductors: companies building new US capacity can import up to 2.5 times their planned capacity duty-free, and once operational, can import 1.5 times their US production volume duty-free. The agreement also sets a 15% cap for Section 232 tariffs on auto parts, timber, and wood products, while the reciprocal tariff for generic pharmaceuticals and aircraft components is set at 0%. (Please see foll