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The US said it had agreed to cut the tariffs it charges on goods from Taiwan to 15%, in exchange for hundreds of billions of dollars in investment aimed at boosting domestic production of semiconductors.

The Commerce Department said the island’s semiconductor and technology enterprises had committed to “new, direct investments” worth at least $250bn (£187bn).

The deal also provides carve-outs from tariffs for Taiwanese semiconductor companies investing in the US.

Boosting US production of semiconductor chips, which are found in machines ranging from cars to smart phones, has been a priority for the US since shortages during the Covid-19 pandemic exposed supply chain risks.

In an interview on CNBC, Commerce Secretary Howard Lutnick said the agreement would help the US become “self-sufficient”.

“We’re going to bring it all over,” he said.

The US has devoted hundreds of billions of dollars in government subsidies to the semiconductor industry in recent years, helping to secure and expand investments from the likes of TSMC, the Taiwanese manufacturing giant that dominates the industry.

As part of its earnings update on Thursday, the company said it was accelerating its investments in the US, where it opened a plant in 2024.

The factory in Arizona, which now makes chips for Nvidia, Apple, AMD and other major American tech companies, was built with the help of $40bn in US government subsidies passed during the Biden administration.

Lutnick said the latest trade deal could lead the firm to expand and was also meant to further develop the supply chain, convincing smaller businesses to relocate to the US as well.

As well as the direct investments from companies, the Taiwanese government will provide $250bn in financing to support firms, according to the Commerce Department.

Taiwan, a self-governed island claimed by China, had been pushing to reach an agreement with the Trump administration over the duties faced by its exports entering the US, set at 20% last year.

But it has been wary of demands to transfer its expertise, seen by some as a safeguard against military action.

The new 15% tariff rate matches the rates the US currently charges on goods from key trade partners such as Japan, South Korea, and the European Union.

Those rates were agreed in deals stemming from tariffs Trump first announced last April, which he said were aimed at addressing imbalances in trade.

The Supreme Court is currently weighing a request from businesses and states in the US to strike down those duties, which they claim were imposed in an overreach of presidential power.

The Trump administration had previously threatened separate, wider tariffs on the semiconductor industry in the name of national security.

It has so far held off on that proposal, which met with widespread alarm by US firms dependent on imports, including from some firms in the sector.

The announcement comes as American chip manufacturer Intel, a TSMC rival, has struggled to gain traction making advanced chips designed for artificial intelligence.

In a surprise move last year, the US government took a 10% stake in Intel but the company is due to cut thousands more American positions in addition to those it has already slashed in recent years.

Overall, the semiconductor manufacturing sector shed more than 17,000 jobs last year, according to the latest data, despite government efforts to boost the industry.