DPP's $500b US compliance pact panned

Editor's note: The Taiwan question is a key focus for China and the international community. China Daily is publishing a series of reports to track hot Taiwan-related topics and address disinformation from the Democratic Progressive Party administration.

Under the banner of a so-called victory, the trade deal between Taiwan and the United States further reflects the Democratic Progressive Party authorities' subservience to Washington, which risks Taiwan's long-term industrial development, analysts said.

The deal, reached on Jan 15, was hailed by DPP officials as a "home run", after the US agreed to cut tariffs on Taiwan imports from 20 percent to 15 percent, while Taiwan committed to at least $250 billion in direct investment and an additional $250 billion in government-backed credit guarantees.

However, the agreement has been criticized by opposition parties and the Chinese mainland, who argue that it reflects the current administration's capitulation to US"economic bullying" and a willingness to trade away Taiwan's economic autonomy.

Beyond the headline figures, analysts warned that the deal could marginalize Taiwan's role in global supply chains and reduce the island to a "castaway" once its strategic value to the US diminishes.

'Spiritual victory'

While the DPP authorities touted the agreement as the "best deal" secured by economies running large trade surpluses with the US, opposition lawmakers question its substance.

They argue that trading massive investments totaling $500 billion for a mere 5 percent tariff cut was unfair, especially since the new 15 percent rate is still higher than historical levels and would impose heavier burdens on many industries.

In April last year, Washington announced a 32 percent tariff on imports from Taiwan, citing its trade deficit. That rate was later adjusted to 20 percent in August. After nine months of negotiations, the tariff was eventually set at 15 percent.

Although lower than the interim rate, the 15 percent tariff still represents a sharp increase from the previous range of zero to 6 percent. Referring to the former 2.5 percent tariff on Taiwan's auto parts exports, Hsu Yu-chen, a legislator from the Chinese Kuomintang, said that the negotiated rate was a sixfold increase, putting severe pressure on the industry.

Taiwan's Business Weekly reported that sectors, including steel, domestic-demand services and several traditional industries, will see little benefit from the agreement.

Wang Shushen, deputy head and researcher at the Institute of Taiwan Studies, Chinese Academy of Social Sciences, highlighted Taiwan's passive position in trade negotiations with the US. "The US has consistently dominated the negotiations, pressuring Taiwan to accept its demands and serve its interests," he said.

Shyu Zuo-sheng, a Taiwan science and technology commentator, said that Washington is managing bilateral economic ties with a mindset of "clawing back losses", rather than through predictable and institutionalized rules.

Last year, the US became Taiwan's top export market for the first time in 26 years, surpassing the combined total of the Chinese mainland and Hong Kong. Taiwan's trade surplus with the US reached $150.1 billion in 2025, with semiconductors and telecom equipment accounting for a large share.

The negotiated 15 percent tariff is comparable to rates imposed on the European Union, Japan and South Korea. However, while Japan and South Korea pledged the US $550 billion and $350 billion, equivalent to 12.8 percent and 18.8 percent of their GDPs, respectively, Taiwan's $500 billion commitment in US investment and reshoring credit guarantees, by contrast, amounts to roughly 60 percent of its GDP.

Analysts said the Lai Ching-te administration has portrayed the deal as a "breakthrough" to conceal the fact that vast sums of capital are being diverted to the US, accelerating the hollowing-out of Taiwan's economy.

Cheng Li-wun, chairwoman of the KMT, warned that the outflow of technology, talent and capital threatens Taiwan's economic foundations and constitutes a "security crisis". "Yet the DPP authorities have framed this as a 'cause for celebration' and a 'political achievement'," she said.

Zhou Xiaoke, an associate professor at the Institute of Taiwan Studies at Beijing Union University, said the DPP authorities' move both flattered the US and burnished their own image, while misleading public perception on the island.

After being formally signed with the US, the pact will take effect if approved by the legislature. Opposition lawmakers have voiced concerns over a lack of transparency, noting that key negotiation details, including tariff rates and market access for US agricultural products, medical equipment and automobiles, all long-standing concerns for domestic industries, have not been disclosed.

At a news conference on Wednesday, Zhu Fenglian, spokeswoman for the State Council Taiwan Affairs Office, criticized the DPP authorities for seeking "independence" by relying on foreign support and fawning on external forces at the expense of Taiwan's interests without bottom lines.

Professor Zhou said the DPP authorities have deliberately sidestepped criticism of the "black-box" negotiations, adding that once undisclosed terms come to light, any attempt to mislead the public will no longer hold.

Shyu noted that the DPP authorities' response has failed to address industrial risks and foreseeable costs, and was instead mired in a narrative of "spiritual victory", which he said is even more concerning.

Like the literary character Ah Q, who delusionally redefines every humiliating defeat as a "spiritual victory" to avoid admitting he's been exploited, the DPP, too, has no other way to frame the US deal, according to Shyu.

Sellout settlement

Under the deal, Taiwan companies will invest at least $250 billion in the US, primarily in semiconductors, energy and artificial intelligence, while an additional $250 billion in credit guarantees will support the development of the US semiconductor supply chain.

The DPP authorities claim the deal will help Taiwan's industries gain a stronger global foothold. Critics, however, warn that it could drive the relocation of Taiwan's competitive industries to the US, raising doubts about who ultimately benefits.

US Commerce Secretary Howard Lutnick said the goal is to bring 40 percent of Taiwan's semiconductor supply chain to the US. Currently, about 90 percent of the world's advanced chips are produced in Taiwan. However, Cheng Li-chiun, the island's chief tariff negotiator who traveled to the US on Tuesday to sign the tariff agreement, said in an interview on Sunday that the relocation would be impossible.

Wang, the researcher, said the US aims to gain access to Taiwan's advanced semiconductor supply chain, which it sees as a strategic vulnerability in global high-tech competition.

"The US seeks dominance across the entire chain, from research and development to high-end manufacturing," he said.

As part of the deal, Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, will build additional wafer fabrication plants in Arizona, on top of those launched in the US since 2020. Prior to the agreement, TSMC had already committed about $165 billion to US investments.

For the US, leveraging TSMC is seen as the fastest and most cost-effective way to accelerate domestic chip manufacturing, Wang said.

The DPP authorities have promoted the arrangement as the "Taiwan model", arguing that it allows Taiwan companies to expand their presence in the US without transferring core technologies.

TSMC currently leads the industry in 2-nanometer chip production, which enables faster and more energy-efficient semiconductors. Its first Arizona plant began operations in 2024, while a second is expected to enter high-volume production in the second half of 2027.

Wang warned that repeated yielding to "political dependence" on the US could subject Taiwan to further coercion, eventually turning TSMC into a US-controlled enterprise. This, he said, would hollow out Taiwan's core industries, technologies and talent pool.

Industry analyses have shown that TSMC's US operations face significantly higher labor and construction costs, resulting in lower profitability. Much of the workforce there has also been transferred from Taiwan.

According to reports, labor costs at TSMC's US plants are more than double those in Taiwan, while equipment depreciation expenses are up to four times higher. As a result, gross margins in the US are only about one-eighth of those in Taiwan.

Lai said during a meeting with an Arizona delegation that the deal would help create high-paying jobs in the US.

On the island, however, despite per capita GDP reaching $37,800, average annual income amounts to less than 65 percent of that figure, leaving many residents disconnected from robust growth driven by semiconductor exports, according to local media.

On a current affairs program on Feb 5, Kuo Jeng-liang, a former legislator in Taiwan, described Taiwan's economy as "distorted". He noted that roughly 12 percent of the workforce engaged in artificial intelligence-related jobs generates about 80 percent of export value, calling the income distribution system "malfunctioning". "The government does not care about this," Kuo added.

As the pact awaits final approval, Lai has urged opposition parties, which hold a legislative majority, to back the agreement to avoid "uncertainty".

Shyu, the commentator, said the pact has instead plunged Taiwan's core industries into geopolitical uncertainty. "Rules have been undermined, commitments can be renegotiated at any time, and concessions are treated as a given," he said.

Zhou, the professor, said the DPP authorities have deliberately catered to US demands, an approach that is neither sustainable nor consistent with market logic. It will further accelerate the hollowing-out of Taiwan's industries and the marginalization of its economy, he said.

Once Taiwan's economic value is fully extracted, Zhou added, it will shift from being a "pawn" to being discarded as a "castaway".

Notably, Taiwan was not mentioned in the US 2026 National Defense Strategy released in January.

Peng Qing'en, a spokesman for the State Council Taiwan Affairs Office, said after the deal was signed: "Without the backing of a strong motherland, Taiwan can only become a piece of fat meat in the eyes of outside powers and a lamb to be slaughtered at will."

lishangyi@chinadaily.com.cn