Taiwan and U.S. unveil sweeping incentives to anchor democratic chip supply chains

Taiwan and the United States outlined a coordinated package of tariff, financial and tax incentives intended to encourage Taiwanese chipmakers to expand production in America while preserving Taiwan's central role in global high-tech manufacturing. Public summaries of the framework present a mix of predictable import rules, large-scale credit support and domestic Taiwan measures designed to sustain innovation and talent.

Under terms described in the summaries, Taiwanese semiconductor firms building U.S. fabs will be allowed to import inputs free of Section 232 tariffs up to 2.5 times the capacity they are constructing while those factories are under development. After completion, firms may continue importing up to 1.5 times their U.S. production capacity without facing Section 232 penalties. The framework also sets reciprocal tariff limits with an overall cap at 15 percent and carves out zero percent tariffs for certain goods, reportedly including generic pharmaceuticals and their ingredients, aircraft components and certain natural resources unavailable domestically. Officials framed the tariff limits as a measure to remove uncertainty for chipmakers weighing where to place next-generation capacity.

The financial backbone of the plan is substantial. Taiwan has pledged credit guarantees worth at least $250 billion to help Taiwanese enterprises finance semiconductor ecosystem build-out on American soil, including industrial parks and advanced manufacturing facilities. The public material identifies Taiwan Semiconductor Manufacturing Co., which has already invested roughly $40 billion in Arizona fabs, as central to the strategy and signals that further U.S. expansion by leading Taiwanese firms will be actively supported.

Taiwan’s domestic legal framework and incentive programs underpin the international push. The Statute for Industrial Innovation, revised in 2022, establishes a 25 percent corporate income-tax credit for companies engaged in technical innovation and key supply-chain roles, plus a five percent credit on new equipment acquired for advanced processes. The statute set an effective tax threshold at 12 percent for 2023 and 15 percent for 2024 through 2029. Separately, R&D tax credits equivalent to 15 percent of total R&D expenditures remain available to qualifying taxpayers. Taiwan’s Ministry of Economic Affairs runs the A+ Industrial Innovation R&D program, offering non-tax incentives such as subsidies for R&D expenses and support for joint investments, while additional incentives include preferential treatment in free trade zones, low-interest loans and local subsidies. The Act for the Recruitment and Employment of Foreign Professionals provides relaxed visa requirements and tax deductions to attract overseas talent.

Policy implications extend beyond individual corporate decisions. The package combines regulatory assurances and financial inducements to shift the economics of onshoring. For U.S. policymakers, operationalizing tariff caps and import allowances will require careful administrative rules and likely legal review to reconcile national security trade measures with treaty commitments. For Taiwan, the approach balances the political imperative to protect a domestic high-tech base with the strategic goal of deepening ties with an allied market.

The plan will also reverberate in domestic politics on both sides: legislators representing manufacturing states and technology districts will scrutinize subsidy terms and oversight mechanisms, while labor, environmental and civic groups are likely to press for transparency on project standards and local economic impacts. Implementation now hinges on the translation of these public summaries into binding agreements, administrative regulations and financing arrangements that firms will use to make long-term investment decisions.