TSMC Faces Margin Squeeze from U.S. Manufacturing Push Driven by Trump

Pressure from President Donald Trump to manufacture advanced semiconductors in the U.S. is increasing costs and squeezing margins at TSMC, the world's leading chipmaker.

Following Trump's return to power in 2025, the president has repeatedly threatened tariffs on companies that don't make their products in America.

Since then, TSMC has announced a total of $200 billion in commitments to the country, including last week's unveiling of a $100 billion investment into advanced semiconductor manufacturing and packaging facilities in the U.S.

While buoyed by the AI boom — TSMC's market cap has risen more than 100% in the past 12 months — blockbuster earnings this quarter were hit by overseas expansion, the company said.

Gross margin increased ahead of guidance, but that was offset by dilution from overseas fabs, CFO Wendell Huang said on an earnings call. Margins will be further diluted over the next "several years" as overseas fab projects "ramp-up", he added.

"President Trump's leadership is driving companies to invest in American manufacturing," said Commerce Secretary Howard Lutnick in a statement.

"TSMC's announcement of an additional $100 billion investment following our historic deal on trade and investment with Taiwan will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to America."

While other Asian chipmakers, including SK Hynix, are developing U.S. facilities, TSMC has made by far the largest commitment. Its aggressive U.S. expansion exposes it to higher production costs, creating a potential headwind for margins.

Political pressure

TSMC on Thursday reported a 77.4% jump in second-quarter profit year on year, soaring past estimates and marking another record-breaking quarter for the world's largest contract-chipmaker.

It's also expanding aggressively in the U.S., as the company continues to see a "multi-year demand mega trend" from its customers, TSMC's Huang told CNBC.

Political pressure is another key driver of that overseas expansion.

"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," a White House spokesperson told CNBC.

Building in the U.S. is considerably more expensive.

"Broadly, we estimate TSMC's US chips to cost 20-50% more than those produced in Taiwan, depending on subsidy timing, tax credit recognition and other cost fluctuations," Phelix Lee, senior equity analyst at Morningstar, told CNBC. Lee added he expected customers to bear more of the higher costs of production.

TSMC is set to raise prices for both advanced and mature chip production by up to 10% in 2027, Nikkei reported on Tuesday. TSMC told CNBC it doesn't comment on pricing.

"What helps TSMC is lack of any material competition," Gaurav Gupta, VP analyst at Gartner, told CNBC.

Because of TSMC's dominance in the leading-edge node market, "a large part of the increased costs would have to be absorbed by its clients, who are looking to diversify or have mandates from the U.S government to purchase local chips," Gupta said.

Margins

The company forecasts the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages, widening to 3% to 4% in the latter stages, Huang said.

"This is a margin difference TSMC can afford because of its very high overall margins," said Gil Luria, head of technology research at D.A. Davidson. TSMC's second-quarter gross margin was 67.7%, up slightly from 66.2% in the first quarter.

While Trump has doubled down on calls for homegrown manufacturing, "customers have increasingly sought geographical diversification after Covid disrupted the global supply chain," said Morningstar's Lee.

"Customers are bracing for geopolitical, logistical, and other disruptions to the supply chain," he added. "We expect made-in-US pressure to persist beyond Trump, although it is less clear how carrot-and-stick will be distributed."