News: U.S.-Taiwan Trade Deal Faces Legal Earthquake as Supreme Court Strikes Down Tariff Framework and Trump Imposes New 15% Global Levy

The Supreme Court's February 20 decision in the tariff case represented the most significant judicial rebuke of presidential trade authority in decades. In a 6-3 ruling, the majority held that IEEPA — a law designed to address foreign policy emergencies such as sanctions and asset freezes — "does not authorize the President to impose tariffs." The decision was notable for its bipartisan composition: Justices Neil Gorsuch and Amy Coney Barrett, both Trump appointees, sided with the majority.

The ruling immediately invalidated the country-specific "reciprocal" tariff rates that had been applied to dozens of nations, including the rates negotiated with Taiwan, Japan, South Korea, and the United Kingdom. However, it did not affect tariffs imposed under other legal authorities — crucially, Section 232 tariffs on steel, aluminum, automobiles, and semiconductors remain in force.

For Taiwan, this distinction matters enormously. The bilateral deal signed on February 13 included provisions shielding Taiwan's semiconductor exports from future Section 232 investigations — a protection that remains intact regardless of the IEEPA ruling. TSMC, which produces more than 90% of the world's most advanced chips, continues to benefit from preferential treatment on its most strategically vital exports. But the broader tariff framework within which the deal was negotiated has been fundamentally altered.

The original agreement, signed by U.S. Trade Representative Jamieson Greer, Commerce Secretary Howard Lutnick, and senior Taiwanese officials, was comprehensive. Taiwan committed to eliminating or reducing 99% of its tariff barriers on American goods, purchasing over $84 billion in U.S. products through 2029, and facilitating $250 billion in semiconductor investments on American soil, with the Taiwan government guaranteeing an additional $250 billion in credit.

In exchange, Taiwan received a 15% tariff rate on its exports to the United States — a reduction from the 20% initially proposed and significantly below the 32% that had been threatened. That rate put Taiwan on par with allies Japan and South Korea, which had negotiated similar deals. The agreement also provided Taiwan with preferential treatment regarding future semiconductor tariffs under Section 232.

The Supreme Court ruling fundamentally reshapes this equation. Under Trump's new Section 122 proclamation, every country now faces a 15% tariff — the same rate Taiwan negotiated as a bilateral concession. Taiwan's trade ministry acknowledged the shift, stating that the flat rate would have "limited impact" given that the island had already secured a 15% rate. But trade analysts note that Taiwan's negotiating leverage has been significantly diminished: the commitments Taipei made — $84 billion in purchases, tariff eliminations on American agricultural goods, and massive investment guarantees — were premised on receiving preferential access that no longer exists in the same form.

The most strategically significant element of the U.S.-Taiwan deal may also be its most durable. The agreement's provisions shielding Taiwan's semiconductor exports from Section 232 national security tariffs were negotiated under a separate legal authority that the Supreme Court's ruling did not touch. This means TSMC and other Taiwanese chipmakers continue to enjoy preferential treatment even as the broader tariff landscape shifts.

This matters because the Trump administration has already opened Section 232 investigations into semiconductor imports, with Commerce Secretary Lutnick previously warning that Taiwanese chip companies that don't build in America could face tariffs of up to 100%. The bilateral deal effectively provides an insurance policy against that threat — one that other chip-exporting nations like South Korea do not necessarily enjoy on the same terms.

The $250 billion investment commitment from Taiwanese companies, anchored by TSMC's $165 billion in planned U.S. operations, also remains on track. TSMC's Arizona fabrication plants are under construction, and the company's most recent earnings report showed profit growth of 46% to $54 billion in 2025, driven by surging AI chip demand. The investment logic — bringing advanced chip manufacturing closer to its largest customers — has not changed, even if the tariff framework around it has.

The shift from IEEPA to Section 122 introduces significant legal constraints that could affect all U.S. trade relationships, including the Taiwan deal. Section 122 of the Trade Act of 1974 allows the president to impose tariffs of up to 15% for 150 days to address "large and serious" balance-of-payment problems. Any extension beyond that period requires congressional approval — a far higher political bar than the unilateral authority Trump previously claimed under IEEPA.

This means the current 15% global tariff is, by law, temporary. If Congress does not act to extend or replace the levies by late July, the tariffs would expire. The Trump administration has signaled it is pursuing additional tariff authority through other legal channels, including new Section 232 investigations, but these require Commerce Department reviews that take months to complete.

For Taiwan and other U.S. trading partners, this creates a period of profound uncertainty. The bilateral deals negotiated under the old IEEPA framework were designed to be permanent arrangements. Under Section 122, the legal foundation is inherently temporary. Taiwan's cabinet said it would "continue to closely monitor developments and maintain close communication with the U.S.," while the International Chamber of Commerce warned that businesses should not expect a simple resolution and that the ruling was "worryingly silent" on the administrative process for reclaiming tariffs already paid.

The potential refund liability is staggering. CNBC reported that the U.S. could owe up to $175 billion in tariff refunds for duties collected under IEEPA — money that was paid by American importers and passed on to consumers. Whether any of those refunds reach foreign exporters, including Taiwanese companies, depends on the commercial terms of individual contracts.

China, which considers democratically governed Taiwan a part of its territory, has been closely watching the evolving tariff situation. Beijing condemned the original U.S.-Taiwan trade deal as an attempt to "hollow out" Taiwan's key industries and "drain" its economic interests. The Supreme Court ruling adds a new dimension to China's calculus: if the legal basis for preferential bilateral trade deals has been weakened, Beijing may calculate that Washington's ability to cement long-term economic partnerships in the Indo-Pacific has been constrained.

The military dimension remains unchanged. China's People's Liberation Army has continued large-scale exercises around Taiwan, including drills simulating encirclement and blockade operations. The U.S. approved $11.15 billion in arms sales to Taiwan in December, and a bipartisan group of 37 U.S. lawmakers has urged Taiwan's legislature to approve a proposed $40 billion multi-year defense budget.

French President Emmanuel Macron, commenting on the Supreme Court ruling from Paris, said the decision proved the value of institutional checks on executive power: "It is not bad to have a Supreme Court and, therefore, the rule of law." His remarks underscored a broader international reaction that welcomed the judicial check on unilateral tariff authority while acknowledging the uncertainty it has unleashed for global trade.

The broader pattern of great-power competition that shaped the original deal — America's effort to secure semiconductor supply chains, counter Chinese influence in the Pacific, and build economic interdependence with key allies — remains firmly in place. But the legal tools available to pursue that strategy have been significantly narrowed, and the political dynamics in Washington have grown more complex.