US Policy Toward Taiwan Under Trump: The Transactional Relationship

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While the foundational legal structures of the Taiwan-US relationship—the Taiwan Relations Act, the Three Joint Communiqués, and the Six Assurances—remain technically operative, the reality of US-Taiwan relations has been changing.

The administration has discarded the values-based “democracy versus autocracy” framework of the Biden era, replacing it with a “flexible realism” that views Taiwan simultaneously as a lucrative arms market, a trade competitor to be disciplined, and a strategic lever in the broader great power competition with China.

The “Insurance Company” Model

The most immediate change in 2025 was the abandonment of predictable, alliance-based diplomacy in favor of what the 2025 National Security Strategy terms “flexible realism.” Under this framework, the intrinsic value of Taiwan as a democratic partner is subordinated to its utility in the US economic and security calculation.

Taiwan as a Fee-for-Service Partner

President Trump’s characterization of the US-Taiwan relationship has shifted from a strategic partnership to a fee-for-service model. In the lead-up to and following his inauguration, the President repeatedly likened the United States to an insurance company, arguing that Taiwan—possessing immense foreign exchange reserves and dominance in the semiconductor sector—was not paying an adequate premium for the security umbrella provided by the US military.

This “insurance” metaphor is not merely rhetorical; it has become the organizing principle for the administration’s policy demands.

The White House has explicitly suggested that Taiwan should increase its defense spending to 10% of its GDP, a figure that military economists and Taiwanese officials have noted would be fiscally impossible without dismantling the island’s civil infrastructure and social services.

This demand serves a dual purpose. First, it functions as domestic political signaling, reinforcing the “America First” narrative that allies are taking advantage of US generosity. Second, it creates significant negotiating leverage. By setting an impossibly high bar for defense spending, the administration can extract concessions in other areas—like semiconductor manufacturing onshoring or trade tariff exemptions—as a form of “payment” for continued US protection.

From Strategic Ambiguity to Transactional Volatility

For decades, US policy was defined by “strategic ambiguity”—the deliberate refusal to state whether the US would defend Taiwan, intended to deter both Chinese aggression and Taiwanese declarations of independence.

The second Trump administration has replaced this with “strategic confusion” or “transactional volatility.” This approach is characterized by contradictory signals that keep all parties—Beijing, Taipei, and US allies—off balance.

The 2025 National Security Strategy, released in December, notably failed to reiterate the United States’ adherence to the “One China” policy. This omission, an anomaly compared to the 2017 and 2022 strategies, signals a tacit move away from the diplomatic formula that has governed the Strait since 1979.

However, the President himself has declined to explicitly commit to defending Taiwan, stating that answering such questions would put him in a “very bad negotiating position.”

This creates a paradox where the written diplomatic doctrine appears more provocative than the President’s spoken rhetoric, forcing Beijing to calculate whether the US is moving toward recognition of Taiwan or preparing to bargain it away.

The Disappearance of “One China”

The diplomatic scaffolding of US-Taiwan relations—the “One China” policy—faced its most significant stress test in decades during 2025. While the State Department continues to cite the Taiwan Relations Act in press releases regarding arms sales, the White House’s strategic documents suggest a fundamental departure.

The 2025 NSS’s failure to mention the “One China” policy is interpreted by analysts as a “tacit move” toward a “One China, One Taiwan” formulation. By refusing to repeat the formula that Beijing demands, the Trump administration is signaling that it no longer feels bound by the diplomatic constraints of the past 50 years.

Beijing has interpreted this omission as a hostile maneuver, with the Chinese Foreign Ministry stating that the US was attempting to “hollow out” the One China principle. However, President Xi Jinping’s response has been complicated by the mixed signals coming from Washington.

Security Policy: Record Arms Sales

Despite the transactional rhetoric and demands for payment, the flow of weapons systems and military technology accelerated significantly in 2025. The administration’s security policy toward Taiwan is characterized by a distinct split: rhetorical skepticism regarding the defense commitment combined with the aggressive monetization of the “porcupine strategy” through record-breaking arms sales.

The $11.1 Billion December Package

In December 2025, the Trump administration announced a massive arms sale package valued at over $11.1 billion, the largest single authorization in the history of US-Taiwan relations. This sale far exceeds the $8.4 billion total approved during the entire Biden administration.

The package focuses heavily on asymmetric capabilities designed to degrade a Chinese amphibious invasion force before it reaches the coastline.

Key Components of the December 2025 Arms Package

What the Advanced Weapons Mean

The inclusion of 420 Army Tactical Missile Systems (ATACMS) represents a significant escalation in the quality of weapons provided to Taiwan. Previously, Washington was hesitant to provide long-range missiles that could strike targets deep within mainland China due to fears of escalation.

The approval of ATACMS indicates a shift in US risk tolerance. These missiles allow Taiwan to threaten PLA staging grounds across the Strait, potentially disrupting an invasion force before it even embarks.

This capability is central to the “porcupine strategy”—making Taiwan difficult and painful to swallow. However, the sheer volume of the sale also aligns with the Trump administration’s economic goals. By selling billions of dollars in high-tech weaponry, the administration is effectively reducing the US trade deficit with Taiwan, aligning security policy with the President’s obsession with trade balances.

From Grants to Sales

A distinct shift in 2025 is the move away from Foreign Military Financing grants toward direct Foreign Military Sales. In September 2025, President Trump reportedly paused $400 million in military aid allocated by Congress, favoring sales instead.

This decision aligns perfectly with the “insurance company” philosophy. The administration argues that Taiwan, as a wealthy economy with substantial foreign reserves, should purchase its security rather than rely on US taxpayer subsidies.

This shift has complicated Taiwan’s defense planning. While the hardware is welcomed, the financial burden forces Taipei to reallocate budget from domestic programs. This has created internal political friction between the ruling Democratic Progressive Party and the opposition Kuomintang. The KMT has used Trump’s demands to argue that the US treats Taiwan as a “cash cow,” leading opposition lawmakers to block defense budget bills.

China’s Response: Sanctions and Military Pressure

Beijing’s response to the arms sales has been swift and multifaceted. The Chinese government views these sales as a violation of sovereignty and a destabilizing factor in the region.

Sanctions on Defense Contractors: In December 2024 and throughout 2025, the Chinese Foreign Ministry announced sanctions against US defense contractors involved in the sales. This included freezing assets and prohibiting transactions with companies such as Raytheon, HII, General Dynamics, and smaller tech firms like Saronic Technologies.

While these companies have limited exposure to the Chinese market, the sanctions serve as a warning to the broader business community and complicate supply chains for dual-use technologies.

Intensified Military Drills: More critically, the People’s Liberation Army intensified military drills around the Taiwan Strait in late 2025. These exercises focused on joint blockade operations, testing Taiwan’s early warning systems and consuming the island’s defense resources.

The Chinese Ministry of National Defense stated that the $10 billion package would “accelerate the push of the Taiwan Strait toward a dangerous situation of military confrontation.”

However, unlike the massive, live-fire drills of 2022 or 2024, Beijing’s response in late 2025 appeared somewhat calibrated. Analysts suggest this is because China is also playing a transactional game with the Trump administration, calculating that Trump’s intense focus on economics offers a pathway to achieve strategic goals without immediate conflict.

Trade Policy: The Weaponization of Tariffs

If security policy has been characterized by profitable reinforcement, trade policy under the second Trump administration has been defined by coercive pressure. The administration has identified Taiwan’s trade surplus with the United States—which reached $74 billion in 2024—as a national security threat.

This has led to the imposition of tariffs that treat Taiwan not as a vulnerable ally, but as a trade competitor indistinguishable from adversaries.

The Reciprocal Tariff Regime

In April 2025, invoking the International Emergency Economic Powers Act, the Trump administration announced a “reciprocal tariff” regime targeting countries with large trade surpluses. Taiwan was initially hit with a massive 32% tariff on its exports to the US.

This aggressive move shocked officials in Taipei, who had anticipated a more lenient approach given Taiwan’s strategic importance.

Following intense negotiations throughout the summer of 2025, the administration agreed to reduce the rate. The reciprocal tariff for Taiwan was ultimately set at a “provisional” 20% in early August 2025. While an improvement over the initial threat, this rate still places Taiwanese exporters at a significant disadvantage.

Crucially, neighboring competitors like South Korea and Japan successfully negotiated a lower 15% reciprocal rate. The administration’s refusal to grant Taiwan the same rate as formal treaty allies underscores its disregard for the geopolitical nuance of Taiwan’s position.

The Semiconductor Tariff Battle

The most contentious element of the trade war has been the treatment of semiconductors, the lifeblood of Taiwan’s economy and a critical input for US industry. Initially, the White House threatened a 10% to 15% blanket tariff on all semiconductor imports.

This threat sent shockwaves through the global technology sector, as tariffs on chips would immediately increase costs for US AI development, consumer electronics, and automotive manufacturing.

US tech giants, including Apple and Nvidia, lobbied heavily against these tariffs. As a result, when the final rules were implemented in August 2025, the administration carved out significant exemptions. Finished semiconductor imports and semiconductor manufacturing equipment were exempted from the 20% reciprocal tariff.

This exemption was not a concession to Taiwan’s security, but a pragmatic recognition of the US economy’s dependence on Taiwanese silicon. However, the threat of tariffs remains potent. President Trump continues to signal that new tariffs on semiconductor products could be announced at any moment, potentially as high as 100%, if Taiwan does not further accelerate the offshoring of fabrication plants to the US.

The “Stolen Business” Narrative

Underpinning these trade actions is a persistent and damaging narrative advanced by President Trump that Taiwan “stole” the US chip industry. In interviews throughout 2024 and 2025, Trump argued that Taiwan used unfair trade practices to hollow out American manufacturing.

“You know, Taiwan, they stole our chip business… and they want protection,” Trump stated in late 2024. This narrative fundamentally alters the nature of the relationship. It reframes Taiwan from a strategic outpost of democracy to an economic predator.

This view drives the administration’s attempts to coerce TSMC into moving more production to Arizona and justifies the withholding of subsidies. It also resonates with a segment of the US electorate, making it difficult for Congress to push back against the harsh trade policies.

The Trade Initiative

Despite the hostility on tariffs, the bureaucratic machinery of trade cooperation has continued to function. The first agreement under the US-Taiwan Initiative on 21st Century Trade, signed in 2023, officially entered into force in December 2024/January 2025.

This agreement covers customs administration, anti-corruption, and regulatory practices—areas that facilitate trade but don’t address market access.

Negotiations for a second agreement covering agriculture, labor, and environment continued throughout late 2025. However, the Trump administration has shown little interest in expanding this initiative into a full Free Trade Agreement involving tariff reductions.

Instead, the administration uses the Initiative as a forum to demand the removal of Taiwan’s non-tariff barriers on US agricultural products—specifically pressing Taiwan to open its rice market and remove labeling requirements for pork and beef, measures that are politically sensitive in Taiwan.

Economic Impact

The trade war has had a tangible impact on Taiwan’s economy. While the semiconductor exemption shielded the most valuable sector, traditional industries such as machine tools, steel, and auto parts have been hit hard by the 20% tariff.

Sectoral Damage: Taiwanese auto-parts shipments are now subject to both the 20% reciprocal tariff and the pre-existing 25% Section 232 duties on steel and aluminum, creating a compounding tax burden.

GDP Growth: Despite these headwinds, Taiwan’s GDP growth forecasts remain relatively robust at 4.0% for 2025, driven largely by the AI boom and demand for advanced chips which remain tariff-free. However, the uncertainty has led some manufacturers to look for partners beyond the United States.

The TSMC Pressure Campaign

The semiconductor industry is the nexus where US security interests, economic ambitions, and Taiwan policy collide. The second Trump administration has pursued a policy of “coercive onshoring”—using threats of tariffs and the withdrawal of subsidies to force TSMC to relocate its most advanced processes to the United States.

Dismantling the CHIPS Act

President Trump has been a vocal critic of the 2022 CHIPS and Science Act, calling it a “horrible thing” and arguing that tariffs, not subsidies, should be used to induce investment. Upon taking office, the administration froze or reviewed several disbursements of CHIPS Act funding.

However, the reality of the supply chain forced a pragmatic adjustment. While criticizing the act, the administration has not fully repealed it but rather sought to reshape it. Commerce Secretary Howard Lutnick suggested that the administration might convert grants into equity stakes or demand higher investment commitments in exchange for the release of funds.

For TSMC, this has meant increased pressure. Lutnick stated in December 2025 that he expects TSMC to boost its US investment to over $200 billion (up from the committed $65 billion) and create 30,000 jobs. The implication is clear: the release of promised federal funds is contingent on these massive expansions.

The administration is using the subsidies not as an incentive, but as a lever to extract maximum capital investment from the Taiwanese giant.

TSMC Arizona: Progress Under Pressure

Despite the political volatility, TSMC’s Arizona projects advanced significantly in 2025, driven by market demand and political pressure.

Fab 1: Began high-volume production of 4nm chips in late 2024/early 2025. Yields were reported to be 4% higher than comparable plants in Taiwan, a major success for the project.

Fab 2: Construction of the shell was completed in 2025. Tool installation is scheduled for mid-2026, with mass production of 3nm chips targeted for 2027 or 2028.

Fab 3: Groundbreaking occurred in April 2025, with plans for 2nm technology and “A16” processes, targeting volume production by the end of the decade.

The administration views these fabs not as a collaborative success but as reparations for the “stolen” industry. The strategic goal is to reduce US reliance on the “Silicon Shield”—the idea that Taiwan’s indispensability protects it. By hollowing out Taiwan’s monopoly on advanced logic chips, the administration risks weakening the economic deterrent that prevents China from attacking.

The Nvidia Export Reversal

Perhaps the most controversial policy shift in 2025 was President Trump’s decision in December to allow Nvidia to export advanced H200 AI chips to China. This reversed the Biden administration’s strict export controls designed to freeze China’s AI development.

Under the new policy, Nvidia can sell to “approved customers” in China, provided the US government takes a 25% surcharge on the sales. Trump justified this as a way to keep US companies competitive and generate revenue, stating that the sales would be conducted under conditions that “allow for continued strong National Security.”

This decision has profound implications for Taiwan:

Undermining the Tech Blockade: It weakens the coalition of allies (including Taiwan, Japan, and the Netherlands) that the US had built to restrict China’s access to advanced tech. Taiwan had strictly complied with US export controls, often at a cost to its own companies. The US reversal leaves Taiwan exposed.

Strategic Confusion: It signals to Beijing that US national security concerns are negotiable for the right price. If the US is willing to sell AI superiority to China, Taiwan may question whether the US would also bargain away Taiwan’s security.

Congressional Backlash: The move drew sharp bipartisan criticism. Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren accused the President of “selling out” national security to Beijing.

This creates a rare alignment between Democrats and China-hawk Republicans against the President’s policy.

Regional Reactions: Allies Hedging Bets

The shift in US policy toward Taiwan has forced key Indo-Pacific allies to recalibrate their own security postures. The unpredictability of the “America First” approach means allies can no longer rely solely on the US security umbrella.

Japan and the “Taiwan Contingency”

Japan views the defense of Taiwan as inextricably linked to its own national security. The ambiguity of the Trump administration has pushed Tokyo to take a more proactive role.

Re-militarization: Japan accelerated the construction of military facilities on the Ryukyu Islands (Yonaguni, Ishigaki), which sit just roughly 100km from Taiwan. These bases are being equipped with anti-ship missiles and electronic warfare capabilities to monitor and deter PLA movements.

Diplomatic Maneuvering: In a February 2025 summit, Prime Minister Shigeru Ishiba managed to secure a joint statement with President Trump affirming that peace in the Taiwan Strait is “indispensable.” However, Trump’s rhetoric elsewhere undermined this assurance.

Burden Sharing: Japan has faced intense pressure to pay more for US troop presence. Unlike Taiwan, Japan has a formal treaty, but the Trump administration’s harsh treatment of allies has forced Japan to hedge by deepening ties with Australia and the Philippines.

The Philippines and Australia

The Philippines, under President Marcos Jr., continued to deepen military cooperation with the US, but the 2025 shift has caused anxiety in Manila. The Philippines serves as a critical staging ground for any US intervention in a Taiwan conflict. Trump’s “transactional” approach has led Manila to fear it could be abandoned if the cost becomes too high.

Australia, a key partner in AUKUS, is also navigating the uncertainty. The Trump administration’s focus on “America First” has raised questions about the delivery of nuclear-powered submarines. Australia’s reaction has been to quietly bolster its own long-range strike capabilities while maintaining solidarity with Japan on Taiwan issues.

China’s Counter-Strategy

China’s response to the second Trump administration has been to exploit the wedges driven between the US and its allies.

Coercion of Japan: The PLA increased naval deployments around the Ryukyu Islands to deter Japan from tying its security to Taiwan.

Economic Enticement: Recognizing Trump’s transactional nature, Beijing has engaged in trade negotiations, offering agricultural purchases in exchange for tariff relief. This suggests a strategy of “buying off” the US to sideline the Taiwan issue.

Gray Zone Warfare: China intensified “gray zone” tactics against Taiwan—cyberattacks, coast guard harassment, and airspace violations. By keeping the pressure just below the threshold of war, Beijing aims to exhaust Taiwan’s defenses without triggering a US response.

Taiwan’s Response: Strategic Patience

For the government in Taipei, led by President Lai Ching-te, the second Trump administration represents an existential management challenge. Taiwan has adopted a strategy of “compliance without capitulation”—acceding to US demands on defense spending and trade where possible, while quietly building resilience against the possibility of US abandonment.

The Defense Budget Hike

Responding to Trump’s demand for increased spending (though not meeting the 10% figure), Taiwan’s cabinet announced a defense budget equal to 3.32% of GDP for 2026, a historic high.

Allocation: The budget prioritizes the “asymmetric” weapons systems the US has pushed for: drones, anti-ship missiles, and resilient command structures. It also includes significant funding for the Coast Guard to counter China’s gray zone harassment.

Political Gridlock: The opposition KMT has used Trump’s “protection money” comments to attack the ruling DPP. They argue that the US treats Taiwan as a “cash cow” rather than a partner, fueling skepticism about the value of the alliance. This has led to legislative battles, with opposition parties blocking parts of the special defense budget.

Economic Diversification

Recognizing that the “Silicon Shield” is being eroded by US onshoring demands, Taiwan is attempting to diversify its economic portfolio. The government is investing heavily in drone technology, AI software, and cybersecurity to create new value propositions for the US alliance beyond just manufacturing chips.

Total Diplomacy: Taiwan’s diplomatic messaging has shifted to emphasize its role as a “solution provider” for US re-industrialization, rather than just a strategic ward. President Lai has framed Taiwan as an “indispensable partner” in making America great again, hoping to appeal to Trump’s desire for economic revitalization.

Public Sentiment

The Taiwanese public’s trust in the US has polarized. Trump’s comments accusing Taiwan of stealing the chip industry and demanding payment have fueled skepticism. A “US-skeptic” sentiment, often amplified by Chinese information operations, has gained traction.

Narratives suggesting that Taiwan is merely a “pawn” or a “chip” to be traded away have resonated with segments of the population, complicating the government’s ability to maintain strong pro-US policies.

Domestic US Politics

The dramatic shifts in Taiwan policy have not occurred in a vacuum; they are shaped by the turbulent domestic political landscape of the United States. The separation of powers has played a critical role in moderating some of the administration’s most extreme impulses.

Congressional Support Remains Strong

While the President has questioned the value of the Taiwan alliance, Congress has remained a staunch supporter. The National Defense Authorization Act for Fiscal Year 2026 was a key battleground. The Senate passed a version that fully funded a “Taiwan Security Cooperation Initiative” at $1 billion, despite administration skepticism.

This bipartisan support acts as a guardrail. Even as the administration pauses grants, Congress continues to authorize them, creating a legal and budgetary framework that keeps the relationship grounded.

Democrats, who traditionally favor reduced military spending, have become hawkish on Taiwan defense largely in reaction to Trump’s perceived softness on China. Republicans are split between the “MAGA” isolationist wing and the traditional security hawks who view Taiwan as essential to US primacy in the Indo-Pacific.

The Nvidia Backlash

The President’s decision to allow Nvidia chip exports to China catalyzed a unique coalition in Congress. Senate Democrats slammed the move as “selling out” national security. They were joined by security-focused Republicans who argued that monetizing AI chips undermines the export control regime the US spent years building.

This backlash suggests that future attempts by the administration to trade technology for revenue will face fierce legislative opposition, potentially leading to veto-proof majorities on restrictive bills.

What It All Means

US policy toward Taiwan in 2025 is defined by a jarring dissonance between military deepening and diplomatic distancing. The administration has created a relationship that is heavily armed but diplomatically hollowed out.

What Has Stayed the Same:

• Arms Sales: The US remains the primary provider of Taiwan’s defense, breaking records with over $11 billion in sales in a single year. The systems provided are consistent with long-term modernization goals.
• Legal Framework: The Taiwan Relations Act remains the law of the land, requiring the US to provide Taiwan with arms of a defensive character. Congress ensures that this mandate is not ignored.
• Strategic Denial: The Pentagon continues to plan and equip Taiwan to deny a Chinese invasion, regardless of the political rhetoric from the White House.

What Is Changing:

• Monetization of Security: The alliance is no longer viewed as a defense of shared democratic values but as a service requiring payment. The 10% GDP demand and “insurance” rhetoric fundamentally alter the moral basis of the relationship.
• Economic Hostility: Taiwan is treated as a trade adversary, subject to tariffs and accused of economic theft. This erodes the mutual trust essential for a security partnership.
• Tech Transfer as Currency: The reversal of export controls on Nvidia chips to China signals that technological containment of Beijing is secondary to generating revenue. This undermines the “Silicon Shield.”
• Diplomatic Erosion: The omission of “One China” from the NSS and the shift to “flexible realism” introduces dangerous unpredictability. It removes the guardrails that have prevented conflict for decades.

In the second Trump administration, Taiwan is secure only so long as it is profitable. The “Ironclad” commitment of the Biden era has been replaced by a “Gold-Plated” contract—robust, expensive, but ultimately subject to renegotiation if the terms no longer suit the dealmaker in the Oval Office.

The risk for Taiwan is that in a crisis, the insurance policy might be cancelled due to a missed premium payment, or worse, the insurer might decide it is more profitable to sell the policyholder to the competition.

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