Trade deal shows Taiwan is U.S.' 'core strategic partner': Expert

Taipei, Jan. 16 (CNA) Agreements reached between Taipei and Washington to lower tariffs and grant Taiwan-exported semiconductors and related products the most favorable treatment demonstrate that the United States regards Taiwan as a "core strategic partner," an academic said Friday.

Under tentative agreements reached Thursday (U.S. time), the 20 percent tariff rate previously imposed by the U.S. on Taiwan will be reduced to 15 percent, putting Taiwan on par with major U.S. trading partners such as Japan, South Korea and the European Union, Taiwan's Cabinet said.

The new tariff rate will not be stacked on top of existing most-favored-nation (MFN) tariffs, the Cabinet added on Friday.

Chang Chien-yi (張建一), president of the Taiwan Institute of Economic Research, said he was "very encouraged" by the results of the Taiwan-U.S. trade talks.

He said Taiwan is the first country to secure most favorable treatment under Section 232 of the U.S. Trade Expansion Act, pending a U.S. government investigation into whether foreign semiconductors and certain goods should be subject to national security tariffs.

Such treatment will also extend to lumber and auto parts, Chang said, adding that this, together with the fact that Taiwan, Japan and South Korea will all be subject to 15 percent tariffs, will provide a boost to Taiwan's traditional industries.

"In recent years, Taiwan's traditional industries have faced difficult conditions, mainly because Japan and South Korea have higher free trade agreement (FTA) coverage than Taiwan, making it difficult for Taiwanese manufacturers to compete on an equal footing," he said, adding that China's excess production capacity has also hurt Taiwan's traditional sectors.

Combined with the establishment of a two-way investment mechanism, the results are in effect "close to an FTA," Chang said, calling the deal a significant milestone that shows the U.S. views Taiwan as a "core strategic partner."

Taiwanese companies will make new direct investments totaling at least US$250 billion in the U.S. semiconductor, energy and artificial intelligence (AI) sectors, according to the Cabinet.

The Taiwanese government will also provide credit guarantees of at least US$250 billion to facilitate additional investment by Taiwanese enterprises in the U.S. semiconductor sector.

Meanwhile, Taiwan will facilitate U.S. investment in the Taiwanese semiconductor, AI, defense and biotechnology sectors to expand market access for American companies, according to the U.S. Commerce Department, though the agency did not outline specific commitments in the tentative agreement by the U.S. to invest more in Taiwan.

Lien Hsien-ming (連賢明), president of the Chung-Hua Institution for Economic Research, said that based on the announced investment agreement, the government "secured better terms than Japan, South Korea and the European Union," which pledged US$550 billion, US$350 billion and US$600 billion in direct investment, respectively.

He said the government will provide credit guarantees but will not commit to specific investment amounts in the United States, leaving companies to decide whether to invest in line with market mechanisms.

Chang also cautioned that the deal could have negative impacts on some industries.

For example, he said, tariffs on U.S.-made automobiles could be waived, putting pressure on domestic automakers.