Taiwan-US Tariff Deal Breakthrough: Economic Impact Turns Positive

By ariachiang

2026-01-26

Taiwan and the United States reached a tariff agreement in January 2026, under which U.S. tariffs on Taiwanese exports were reduced from 20% to 15% and no longer stacked with the Most-Favored-Nation (MFN) rate—marking the first time Taiwan has secured such preferential treatment. According to a think tank assessment released by Taiwan’s Ministry of Economic Affairs on January 26, 2026, under the original high-tariff scenario, Taiwan’s exports to the U.S. were projected to decline by 5.75%–7.5% year over year, industrial output to fall by 1.3%–1.4%, overall GDP to contract by 0.3%–0.78%, and industrial employment to decrease by around 36,000 jobs. Following the agreement’s implementation, exports are expected to turn to modest growth of 0.04%–0.08%, output to rise by 0.01%–0.02%, GDP to remain flat to slightly increase by 0.01%, and employment to expand by 206–329 jobs. Overall, the agreement significantly improves the competitiveness of Taiwan’s traditional industries, with agricultural products such as tilapia and orchids facing U.S. tariff levels more favorable than those applied to China (47%) and Canada (35%).

The positive shift in these indicators primarily reflects the efforts of Taiwan’s negotiating team, which, after six rounds of consultations, successfully secured the most favorable treatment under the U.S. Section 232 framework for semiconductors and related products. Taiwan also committed to US$250 billion in self-funded investments by Taiwanese firms into the U.S. supply chain, including TSMC’s expansion of its Arizona facilities. U.S. President Donald Trump implemented the 20% tariff policy starting in August 2025 to promote domestic semiconductor manufacturing and employment. In response, Taiwan—led by Vice Premier Cheng Li-chiun—leveraged AI strategic partnerships and energy investment initiatives during negotiations, enabling Taiwan’s tariff rate to align with those of Japan and South Korea and effectively mitigate export headwinds. In parallel, the government is providing matching credit guarantees to help small and medium-sized enterprises reduce investment risks in the U.S. and to cushion trade uncertainties arising from economic pressure from China.

In summary, the agreement is expected to stabilize Taiwan’s exports to the U.S. in the short term, with markets anticipating an upward revision of Taiwan’s 2026 economic growth forecast to 3.9% (from the previous 1.9% year-over-year), alongside positive reactions in equity and currency markets. Over the medium term, Taiwan must guard against intensified competition from U.S. products entering the domestic market tariff-free—particularly in the automotive and agricultural sectors—which could face legislative resistance at home. Nevertheless, if supply chain diversification and a bilateral tax treaty are implemented, Taiwan–U.S. economic and trade resilience will be strengthened, supporting continued positive growth momentum through 2027.

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