The pressure from Trump's "Made in America" agenda is translating into tangible financial costs for Taiwan Semiconductor Manufacturing (TSM). While the world's largest contract chipmaker reported record quarterly profits, it has for the first time explicitly quantified the impact of its overseas expansion on gross margins, a pressure set to intensify in the coming years.
TSMC's net profit soared 77.4% year-on-year this quarter, setting another record. However, behind the impressive results, the expansion of overseas wafer fabs has already begun to drag down overall profitability. Chief Financial Officer Wendell Huang stated during the earnings call that while gross margin exceeded prior guidance, it was offset by the dilution effect from overseas fabs. He warned that as these overseas projects come online over the next "several" years, profit margins would face further pressure.
Concurrently, according to a Nikkei report, TSMC plans to raise prices for both its advanced and mature node chips by up to 10% starting in 2027, indicating that some cost pressures may be passed on to customers.
Since Trump's return to the White House in 2025, TSMC has announced cumulative investment commitments in the US totaling $200 billion. This includes a $100 billion plan for advanced semiconductor manufacturing and packaging facilities disclosed just last week. A White House spokesperson told CNBC that "trillions of dollars in investment from TSMC and other semiconductor companies are a direct result of President Trump's trade and economic policies."
Political Pressures Drive Expansion as Costs Become Clearer
Following Trump's return to office, the administration has persistently used tariff threats to pressure companies not manufacturing in the US. TSMC's massive investment push in America has accelerated under this backdrop.
US Commerce Secretary Howard Lutnick stated, "President Trump's leadership is driving corporate investment in American manufacturing. TSMC's additional $100 billion investment will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to the United States."
However, building factories in the US significantly increases costs. Phelix Lee, a senior equity analyst at Morningstar, told CNBC, "Overall, we estimate that the cost of producing chips in the US for TSMC is 20% to 50% higher than in Taiwan, depending on the timing of subsidies, the recognition of tax credits, and other cost variables." He also anticipates that customers will bear a greater share of the additional costs arising from higher production expenses.
Quantified Margin Dilution, Yet Still Manageable
TSMC has provided its first specific forecast for the gross margin impact of overseas expansion. Huang indicated that as overseas fab projects progress, the initial dilution effect on gross margin is expected to be 2% to 3%, widening to 3% to 4% in later stages.
Gil Luria, Head of Technology Research at D.A. Davidson, believes this level of dilution is manageable given TSMC's current profit levels. TSMC's second-quarter gross margin was 67.7%, a slight improvement from 66.2% in the first quarter. "TSMC's overall margins are extremely high; it's a gap they can afford," Luria said.
Among other Asian chipmakers, companies like SK Hynix are also developing US-based facilities. However, the scale of TSMC's investment commitment far exceeds its peers, making its resulting cost exposure the most pronounced.
Dominant Position Provides a Buffer, Cost Pass-Through Likely
Despite margin pressures, TSMC's dominant position in the advanced node market provides significant bargaining power.
Gaurav Gupta, Vice President Analyst at Gartner, told CNBC, "What works in TSMC's favor is that it has virtually no meaningful competitor." Because of this, "a large portion of the cost increases will have to be borne by its customers—customers who are either seeking supply chain diversification or are bound by US government policies requiring domestic chip procurement."
Morningstar's Phelix Lee also expects the "Made in America" pressure to persist beyond Trump's term, but "how incentives and penalties are allocated remains unclear." He noted that the COVID-19 pandemic's disruption to global supply chains has already prompted customers to proactively seek geographical diversification. "Customers are preparing for geopolitical, logistical, and other supply chain disruption risks," he said.
TSMC stated that it continues to see "strong multi-year demand megatrends" from its customers and that its US expansion is driven by robust customer demand. Over the past 12 months, fueled by the AI boom, TSMC's market capitalization has surged over 100%.
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