Washington DC - The US said Thursday that it has reached a deal with Taiwan to reduce tariffs on goods from the democratic island, while increasing investments by Taiwanese companies in American tech industries.

Under the deal, Washington will lower tariffs on Taiwanese goods to 15%, down from the current 20% "reciprocal" rate meant to address US trade deficits and practices that the country deems unfair.

Sector-specific tariffs on Taiwanese auto parts, timber, lumber, and wood products will also be capped at 15%, the US Commerce Department said.

Meanwhile, Taiwanese chip and tech businesses are set to make "new, direct investments totaling at least $250 billion" to build and expand capacity in areas like advanced semiconductors and artificial intelligence in the US.

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Taiwan will also provide "credit guarantees of at least $250 billion to facilitate additional investment by Taiwanese enterprises," the Commerce Department added.

The agreement comes after months of negotiations.

Taiwanese President Lai Ching-te had pledged to boost investments in the US and increase defense spending as his government tried to lower US duties, and avoid a toll on its semiconductor chip exports.

On Thursday, the Commerce Department added that Taiwanese firms building new US chip operations will also have more favorable treatment when it comes to future semiconductor duties.