Trump’s U.S. Chip Push is Squeezing TSMC Profit  Margins

Pressure from U.S. President Donald Trump’s push to bring semiconductor manufacturing back to the United States is raising costs and weighing on margins at Taiwan Semiconductor Manufacturing Co (TSMC), even as surging demand for artificial intelligence chips drives record profits.

The world’s largest contract chipmaker, whose customers include Nvidia and Apple, has pledged $200 billion in U.S. investment since Trump returned to office in 2025, including a $100 billion expansion announced last week for advanced semiconductor manufacturing and packaging facilities.

TSMC said overseas expansion diluted profitability in the second quarter and will continue to weigh on margins for several years as new factories ramp up.

“Gross margin increased ahead of guidance, but that was offset by dilution from overseas fabs,” Chief Financial Officer Wendell Huang said on the company’s earnings call, adding that margins will be further diluted over the next “several years” as overseas fab projects “ramp-up”.

The comments came after TSMC reported a 77.4% year-on-year jump in second-quarter profit, beating market expectations and marking another record quarter, buoyed by strong demand for AI chips.

Trump has repeatedly threatened tariffs on companies that manufacture products outside the United States, making domestic investment a strategic priority for global chipmakers.

“President Trump’s leadership is driving companies to invest in American manufacturing,” U.S. Commerce Secretary Howard Lutnick said 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.”

A White House spokesperson also credited the administration’s policies for the industry’s investment commitments.

“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,” the spokesperson said.

While South Korea’s SK Hynix and other Asian chipmakers are also expanding manufacturing in the United States, TSMC has made the largest commitment, exposing it to significantly higher production costs.

“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,” said Phelix Lee, senior equity analyst at Morningstar. He added that customers were likely to bear a growing share of those higher costs.

Japanese business newspaper Nikkei reported on Tuesday that TSMC plans to raise prices for advanced and mature chip production by as much as 10% in 2027. TSMC declined to comment on pricing.

“What helps TSMC is lack of any material competition,” said Gaurav Gupta, vice president analyst at Gartner.

Because of TSMC’s dominance in leading-edge chip manufacturing, “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.

TSMC expects overseas expansion to reduce gross margins by 2% to 3% in the early years of factory ramp-up, widening to 3% to 4% at later 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 reported a second-quarter gross margin of 67.7%, up from 66.2% in the previous quarter.

Lee said geopolitical concerns, in addition to U.S. industrial policy, were encouraging customers to diversify manufacturing beyond Taiwan.

“Customers have increasingly sought geographical diversification after Covid disrupted the global supply chain,” he said.

“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.”

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