The U.S. and Taiwan have reached a trade agreement to build chips and chip factories on American soil, the Department of Commerce announced on Thursday.

As part of the agreement, Taiwanese chip and technology companies will invest at least $250 billion in production capacity in the U.S., and the Taiwanese government will guarantee $250 billion in credit for these companies.

In exchange, the U.S. will limit reciprocal tariffs on Taiwan to 15%, down from 20%, and commit to zero reciprocal tariffs on generic pharmaceuticals, their ingredients, aircraft components, and some natural resources.

The announcement added that future tariffs under the Section 232 framework will have some exceptions for companies that are building chips in the U.S. Taiwanese companies building new U.S. chip fabs — such as TSMC — will be able to import up to 2.5 times the amount of capacity they are building while the factories are under construction, without paying tariffs under the framework.

When the factories are completed, companies will be able to import 1.5 times their U.S. production capacity, Commerce said.

The agreement provides clarity to chip companies and technology firms that have grappled with uncertainty over the past year over the Trump administration’s approach to tariffs in the semiconductor industry.

It also incentivizes TSMC, the world’s leading fab company, to continue to build more factories on U.S. soil, while making it clear that it can continue to build chips for U.S. companies in Taiwan.

TSMC has already built fabs in Arizona, investing as much as $40 billion to produce chips for companies like Apple and Nvidia, using previous grants of U.S. government money under the CHIPS Act.

The U.S. government has prioritized American production of leading-edge chips as the struggle for access to AI semiconductors has become a key geopolitical matter.

U.S. officials have also said that there is substantial risk to the U.S. economy if China invades Taiwan and reduces access to TSMC chips.