Trump's strong push for "Made in America" raises costs, TSMC warns that overseas expansion will long-term erode profit margins

The Zhitong Finance APP noted that pressure from U.S. President Trump to manufacture advanced semiconductors in the United States is driving up costs for the world's largest chip manufacturer, Taiwan Semiconductor (TSM.US), and squeezing its profit margins.

Since Trump returned to power in 2025, the president has repeatedly threatened to impose tariffs on companies that do not produce products in the United States.

Since then, Taiwan Semiconductor has announced a total investment commitment of $200 billion in the U.S., including an additional $100 billion investment in advanced semiconductor manufacturing and packaging facilities announced last week.

Taiwan Semiconductor stated that despite being driven by the artificial intelligence (AI) boom—its market value has increased by more than 100% in the past 12 months—the strong earnings this quarter were still impacted by overseas expansion.

Taiwan Semiconductor CFO Jensen Huang stated during the earnings call that the gross margin growth exceeded the expected guidance but was offset by the dilution effect brought by overseas wafer fabs. He added that as the overseas wafer fab projects "ramp up capacity," profit margins will face further dilution in the coming "years."

U.S. Secretary of Commerce Gina Raimondo stated in a statement: "President Trump's leadership is driving corporate investment in American manufacturing." "Following the historic trade and investment agreements, Taiwan Semiconductor announced an additional $100 billion investment, which will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to the U.S."

While other Asian chip manufacturers, including SK Hynix, are also building facilities in the U.S., Taiwan Semiconductor's commitment is the largest to date. Its aggressive expansion in the U.S. has led to higher production costs, posing a potential resistance to profit margins.

Political Pressure

Taiwan Semiconductor announced last Thursday that its net profit for the second quarter increased by 77.4% year-on-year, significantly exceeding expectations and setting another historical high for the world's largest chip foundry.

Jensen Huang told the media that the company continues to see a "multi-year demand trend" from customers, and the company is also aggressively expanding its business in the U.S.

Political pressure is another key driver of this overseas expansion.

A White House spokesperson stated: "The trillions of dollars in investments from Taiwan Semiconductor and other semiconductor companies are the result of President Trump's trade and economic policies, from the historic trade agreement with Taiwan to the renegotiated CHIPS Act investment plan."

The cost of building factories in the U.S. is much higher. Felix Li, a senior equity analyst at Morningstar, stated: "Overall, we estimate that the cost of chips produced by Taiwan Semiconductor in the U.S. is 20% to 50% higher than those produced in Taiwan, depending on the timing of subsidies, tax credit confirmations, and other cost fluctuations." Li also added that he expects customers to bear more of the increased production costs.

Taiwan Semiconductor plans to raise the foundry prices for advanced and mature process chips by up to 10% by 2027. Taiwan Semiconductor declined to comment on pricing issues to the media.

Gartner Vice President and Analyst Gaurav Gupta stated: "What works in favor of Taiwan Semiconductor is the lack of substantial competitors."

Gupta noted that due to Taiwan Semiconductor's monopoly position in the leading process market, "most of the increased costs will have to be absorbed by its customers, who are either seeking supply chain diversification or have received executive orders from the U.S. government to purchase domestic chips."

Profit Margin

Jensen Huang stated that the company expects a dilution effect on gross margin of 2% to 3% during the initial ramp-up phase of overseas wafer fabs in the coming years, which will expand to 3% to 4% in the later stages.

D.A. Davidson's head of technology research, Gil Luria, said, "Given TSMC's overall profit margin is very high, this is a margin gap it can withstand." TSMC's gross margin in the second quarter was 67.7%, slightly higher than the 66.2% in the first quarter.

Morningstar's Li stated that despite Trump doubling down on calls for domestic manufacturing, "after the COVID-19 pandemic disrupted global supply chains, customers are increasingly seeking geographical diversification."

He added, "Customers are preparing for potential geopolitical, logistical, and other disruptions to the supply chain. We expect the pressure for 'Made in America' to continue after Trump's term, although how the 'carrot and stick' policy will be distributed at that time is less certain."