China says trade deal with U.S. will ‘drain Taiwan’s economy’ for American benefits

China has doubled down on its criticism of the trade deal between Taiwan and the U.S. agreed last week, warning that it would benefit Washington, while eroding the island’s industrial strength.

The trade agreement saw U.S. tariffs on the Taiwan’s exports reduced to 15% with Taipei committing billions in additional investments in America.

Peng Qingen, a spokesperson for China’s Taiwan Affairs Office, said on Wednesday that the deal would “only drain Taiwan’s economic interests,” while slamming the Democratic Progressive Party, the ruling party of Taiwan, for letting the U.S. “hollow out” the island’s key industry. That’s according to a CNBC translation of his remarks in Mandarin.

Beijing’s last week had said that China “firmly opposed” agreements between Taiwan and countries that maintain diplomatic ties with Beijing, and urged the Washington to adhere to the “one-China principle.”

China considers democratically governed Taiwan as its own territory and Chinese President Xi Jinping regards its reunification with the mainland “a historical inevitability.” Taiwan rejects those claims.

Taiwanese firms will make direct investments to the tune of $250 billion in the U.S. to build and expand tech operations including chips and AI. The Taiwanese government also promised to guarantee $250 billion in credit to its chip and technology companies to further expand their production capacity in the U.S.

Taiwanese companies will also enjoy higher quotas for tariff-free imports of their chips into the U.S. 

In return, Washington would lowered its levies on most goods from Taiwan to 15% from 20%, and waived tariffs on generic drugs and ingredients, aircraft components and natural resources unavailable domestically.

The goal is to bring 40% of Taiwan’s entire semiconductor supply chain to the U.S., Commerce Secretary Howard Lutnick told CNBC on Thursday.

Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, has already pledged to invest $165 billion into chip fabrication and processing facilities in the U.S., along with a research and development lab. The company is reportedly planning to build 4 to 6 more plants, raising the total to more than 10.

Beijing on Wednesday said that the U.S. was “using Taiwan to contain China,” claiming that labor costs for TSMC’s U.S. factory were more than double those at its Taiwan factory.

TSMC did not immediately respond to CNBC’s request for comments.

DPP wants “TSMC to significantly increase its investment in the U.S., creating so-called high-paying jobs for Americans, which will only destroy the roots of the island’s industries,” Peng said.

Experts have pointed out that the deal was unlikely to fully wean Washington off Taiwan’s most advanced semiconductors anytime soon, as Taipei has stuck to its policy of keeping its most advanced technology at home.

When asked about Lutnick’s statement, Taiwan’s vice premier Cheng Li-chiun said that the U.S. goal of achieving 40% domestic chip self-sufficiency as a national security priority does not depend on Taiwan alone, adding that the U.S. chip giants and other nations were also part of the plan.

Taiwan dominates global chip production, with TSMC producing most of the world’s advanced chips. Nearly a third of the global demand for new computing power is estimated to be met by Taiwan.   

The island’s central role in the global semiconductor supply chain has also made preserving its de facto autonomy against any Chinese attack a strategic priority for the U.S. and its allies.

The pact deepens the Trump administration’s ties with Taipei at a time when China has ratcheted up pressure on the island.