U.S.-Taiwan tariff deal sealed at same rate as Korea and Japan, igniting a three-way productivity race in manufacturing

U.S.-Taiwan tariff talks conclude with $500 billion investment pledge
Same tariff rate as Korea and Japan, setting off a three-way productivity race
Korea faces structural challenge: high wages, weak productivity

U.S.-Taiwan tariff negotiations have concluded. As with South Korea and Japan, Taiwan is set to make large-scale investments in the United States, with Washington in turn adjusting the reciprocal tariff rate applied to Taiwan. With Korea, Japan, and Taiwan—three economies that compete fiercely in global manufacturing—now facing the same tariff rate, some in the market say the competitive landscape could increasingly be decided by each country’s productivity.

Taiwan pledges U.S. investment in exchange for lower tariffs

On the 15th (local time), the U.S. Department of Commerce said in a press release that Taiwanese semiconductor and technology companies will make $250 billion in new direct investment in the United States to build and expand capabilities in advanced semiconductors, energy, and artificial intelligence (AI) production and innovation. Separately, the Taiwanese government said it would provide at least $250 billion in credit guarantees to spur additional investment by Taiwanese firms in the U.S., and to support efforts to build out a full semiconductor supply chain and ecosystem in the country.

In return, the United States lowered the reciprocal tariff rate applied to Taiwanese products from 20% to 15%. In addition, Taiwanese companies building new semiconductor manufacturing facilities in the U.S. will be exempt from product-specific tariffs for imports of up to 2.5 times their facilities’ production capacity while construction is underway, with volumes beyond that receiving preferential rates under Section 232 of the Trade Expansion Act. Once a facility is completed, Taiwanese firms will be allowed to import into the U.S. tariff-free volumes equivalent to 1.5 times the plant’s production capacity.

Commerce Secretary Howard Lutnick said that if a company builds a plant capable of producing 1 million wafers, it could import 2.5 million wafers tariff-free during the construction period. He added that if companies do not build in the U.S., tariffs could “very likely” rise to 100%, emphasizing it was “a stick, not a carrot.” The two sides also agreed to set product-specific tariffs at 15% for Taiwanese auto parts, lumber, logs, and wood-derived products. Generic drugs and active ingredients, aircraft parts, and natural resources that cannot be procured within the U.S. will be exempt from reciprocal tariffs.

Similar structure to U.S. deals with South Korea and Japan

The market is focusing on the fact that Taiwan struck a trade deal under terms similar to those agreed by South Korea and Japan. South Korea lowered its reciprocal tariff rate in July in exchange for committing $350 billion in investment in the United States. At the time, President Trump said the U.S. and South Korea had reached a “full and complete trade agreement,” adding that South Korea would provide $350 billion to the U.S. for investments “owned and controlled by the United States” and chosen by him as president.

According to the detailed bilateral agreement reached in October last year, the $350 billion in U.S.-bound financing consists of $200 billion in cash investment and $150 billion tied to shipbuilding cooperation, with an annual investment cap set at $20 billion. Kim Yong-bum, senior presidential secretary for policy, said the plan is structured so investments are made within the $20 billion annual limit depending on project progress, keeping outflows within a range the foreign-exchange market can absorb. He added that there is also a basis to request adjustments to the timing and size of payments if financial-market instability becomes a concern.

Japan, meanwhile, secured a cut in tariffs from 25% to 15% by pledging $550 billion in investment in the United States and agreeing to open its markets in areas including autos, rice, and agricultural products. Unlike South Korea, Japan adopted a structure that executes cash-like investment over a shorter period, and most of the profits generated after the investment are reportedly allocated to the U.S. Some foreign media have reported that 90% of the returns from Japan’s U.S. investment flow to the American side.

Shifting competitive landscape leaves Korea at a disadvantage

With all three economies now facing the same U.S. tariff rate, some analysts expect a full-blown “productivity race” among South Korea, Japan, and Taiwan—given that all three rely heavily on exports tied to semiconductors and electronics. Taiwan has been expanding its influence in chips and electronic components led by TSMC, the world’s top foundry. South Korea remains a strong exporter anchored by memory leaders Samsung Electronics and SK Hynix, as well as automakers Hyundai Motor and Kia. Japan also competes globally with key export items including automobiles and parts, electrical and electronic circuits, and semiconductor equipment.

As the tariff gap disappears, some argue Korea is left in a relatively weaker position, with structural issues in its industrial base potentially becoming a drag. One recurring pressure point is persistently high wages. A report by the Korea Employers Federation comparing wages across Korea, Japan, and Taiwan found that Korea’s wages—converted using purchasing power parity exchange rates—are about 20% higher than those of Japan and Taiwan. In manufacturing, the annual total pay for regular workers in Korea was calculated at $67,491, which is 27.8% higher than Japan and 25.9% higher than Taiwan.

The problem is that Korea’s productivity does not stand out relative to its wage levels. OECD data show Korea’s hourly labor productivity was $57.5 in 2024, placing it in the 30s among member countries for the seventh straight year. Ha Sang-woo, head of economic research at the Korea Employers Federation, said a high-wage structure not backed by productivity is not sustainable, and called for urgent efforts to boost productivity and shift toward job- and performance-based pay systems. He added that policies such as legally extending the retirement age should be approached cautiously, warning they could deepen labor-market dualization and worsen youth employment at a time when companies are already facing significant labor-cost pressure.