President Donald Trump’s aggressive “America First” manufacturing policies are compelling TSMC, the world’s leading chipmaker, to significantly expand its U.S. operations, including a recent $100 billion investment. While driven by strong AI demand, this massive overseas expansion is increasing production costs and is projected to dilute TSMC’s gross margins by 2-4% in the coming years. Despite these headwinds, TSMC’s market dominance and high overall margins suggest it can absorb these costs, passing some onto clients.
President Donald Trump's relentless push for domestic manufacturing is putting significant pressure on TSMC, the world's leading semiconductor manufacturer, leading to increased operational costs and a squeeze on its profit margins.
Since Trump's return to office in 2025, the administration has escalated threats of tariffs against companies that fail to produce their goods within American borders. In response, the Taiwan-based chip giant has committed an astonishing $200 billion to U.S. manufacturing. This includes a monumental $100 billion investment announced just last week for advanced semiconductor fabrication and packaging facilities across the U.S.
Despite enjoying a robust period driven by the AI boom, which has seen TSMC's market capitalization more than double in the past year, its recent blockbuster earnings were tempered by the expenses associated with its overseas expansion, as stated by the company.
TSMC CFO Wendell Huang highlighted that while gross margins surpassed guidance, they were diluted by the costs of international fabs. Huang anticipates further margin dilution of 2% to 3% in the early stages and 3% to 4% in later phases over the next “several years” as these overseas projects ramp up.
Commerce Secretary Howard Lutnick lauded the commitment, stating, "President Trump's leadership is driving companies to invest in American manufacturing. TSMC's announcement of an additional $100 billion investment, following our historic trade and investment deal with Taiwan, will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to America."
Although other Asian chipmakers, such as SK Hynix, are also establishing U.S. facilities, TSMC's financial commitment far outweighs its competitors, thereby exposing it more significantly to the elevated production costs in the U.S.
Political Pressure and Economic Reality
TSMC recently announced a staggering 77.4% year-on-year surge in second-quarter profit, significantly surpassing estimates and marking yet another record-breaking quarter. This aggressive expansion into the U.S. is not solely a response to a "multi-year demand mega trend" from its customers, as Huang explained, but also a direct consequence of intense political pressure.
A White House spokesperson affirmed, "Trillions of dollars in investments by TSMC and other semiconductor companies are a result of President Trump's trade and economic policy, from a historic trade deal with Taiwan to renegotiated CHIPS program investments."
Building semiconductor fabs in the U.S. is substantially more expensive than in Taiwan. Phelix Lee, a senior equity analyst at Morningstar, estimates that U.S.-produced chips from TSMC could cost 20-50% more, depending on various factors like subsidies and tax credits. Lee anticipates that customers will ultimately absorb a greater share of these increased production costs.
Reports from Nikkei indicate that TSMC plans to raise prices for both advanced and mature chip production by up to 10% in 2027, though TSMC has declined to comment on pricing strategies.
Gaurav Gupta, VP analyst at Gartner, noted TSMC's dominant position in the leading-edge node market, suggesting that a significant portion of these elevated costs would inevitably be passed on to clients who are either diversifying their supply chains or are mandated by the U.S. government to purchase domestically produced chips.
Impact on Margins
TSMC's CFO Huang projected that the gross margin dilution from ramping up overseas fabs would range from 2% to 3% initially, expanding to 3% to 4% in subsequent stages over the coming years. Despite this, Gil Luria, head of technology research at D.A. Davidson, believes TSMC can manage this margin difference due to its exceptionally high overall margins. TSMC's second-quarter gross margin stood at 67.7%, a slight increase from 66.2% in the first quarter.
While President Trump advocates fiercely for domestic manufacturing, customers have also increasingly sought geographical diversification in their supply chains following disruptions caused by events like the COVID-19 pandemic. Morningstar's Lee commented, "Customers are bracing for geopolitical, logistical, and other disruptions to the supply chain. We expect made-in-US pressure to persist beyond Trump, although it is less clear how carrot-and-stick will be distributed."
