TSMC's quarterly net profit surged 77.4% to set another record, yet the political bill for "Made in America" is becoming increasingly clear—overseas expansion is expected to pressure gross margin by 2% to 4%, with chip-making costs in the U.S. running 20% to 50% higher than in Taiwan. Facing pressure from Trump's $200 billion investment commitment, TSMC, holding a nearly irreplaceable monopoly in advanced process technology, plans to raise prices by up to 10% by 2027, passing cost pressures on to clients such as Apple and Nvidia.
Trump's "Made in America" pressure is translating into real profit costs for TSMC. While the world's largest foundry set a new quarterly profit record, it also, for the first time, explicitly quantified the extent to which overseas expansion is eroding its gross margin, a pressure that will intensify in the coming years.
TSMC's net profit for the quarter surged 77.4% year-on-year, setting another record. However, behind the impressive performance, the expansion of overseas wafer fabs has begun to drag down overall profitability. TSMC CFO Wendell Huang stated on the earnings call that while the gross margin was higher than previous guidance, it was offset by the dilution effect from overseas wafer fabs. He warned that as overseas projects come online over the next "several" years, profit margins will face further pressure.
Meanwhile, according to a Nikkei report, TSMC plans to raise prices for both advanced and mature node chips by up to 10% in 2027, potentially passing on some of the cost pressure to customers.
Since Trump's return to the White House in 2025, TSMC has announced cumulative investment commitments to the U.S. totaling $200 billion, including a $100 billion plan for advanced semiconductor manufacturing and packaging facilities disclosed just last week. A White House spokesperson told CNBC, "The trillions of dollars in investment from TSMC and other semiconductor companies are a direct result of President Trump's trade and economic policies."
Political Pressure Drives Expansion, Cost Implications Become Clearer
Since returning to office, Trump has consistently used tariff threats to pressure companies not producing in the U.S., accelerating TSMC's large-scale investments stateside.
U.S. 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 fabs in the U.S. significantly increases costs. Morningstar senior equity analyst Phelix Lee told CNBC, "Overall, we estimate the cost of producing chips in the U.S. for TSMC is 20% to 50% higher than in Taiwan, depending on the timing of subsidies, tax credit recognition, and other cost variables." He also expects customers to bear more of the additional costs arising from higher production expenses.
Gross Margin Dilution Quantified, But Still Manageable
TSMC provided its first specific forecast on the impact of overseas expansion on gross margin: Huang stated that as overseas fab projects progress, the initial gross margin dilution is expected to be 2% to 3%, widening to 3% to 4% later on.
D.A. Davidson technology research head Gil Luria believes this level of dilution is manageable given TSMC's current profit levels. TSMC's Q2 gross margin was 67.7%, slightly up from 66.2% in Q1. "TSMC's overall margins are extremely high; this gap is something it can afford," Luria said.
Among other Asian chipmakers, companies like SK Hynix are also developing U.S. facilities, but TSMC's investment commitments far exceed its peers, resulting in the most significant cost exposure.
Monopoly Position Provides Buffer, Cost Pass-Through to Customers Likely
Despite margin pressures, TSMC's dominant position in the advanced node market provides significant bargaining power.
Gartner VP analyst Gaurav Gupta told CNBC, "What works in TSMC's favor is it has virtually no meaningful competitor." As a result, "most of the cost increases will have to be borne by its customers—customers who are either seeking supply chain diversification or bound by U.S. 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 will be distributed remains unclear." He noted that the COVID-19 pandemic's impact on global supply chains has prompted customers to proactively seek geographic diversification. "Customers are preparing for geopolitical, logistical, and other supply chain disruption risks."
TSMC stated that it continues to see a "multi-year megatrend of demand" from customers, with U.S. expansion driven by strong customer demand. Over the past 12 months, boosted by the AI boom, TSMC's market value has risen over 100%.
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