Pressure from President Donald Trump to make advanced semiconductors in the US is driving up costs and squeezing margins. of TSMCthe world’s leading manufacturer.
After Trump’s return to power in 2025, the president has again threatened to impose tariffs on companies that do not make their products in America.
Since then, TSMC has announced a total of $200 billion in investments in the country, including last week’s announcement of a $100 billion investment in an advanced semiconductor manufacturing and packaging industry in the US.
While boosted by the AI boom — TSMC’s market share is up more than 100% in the past 12 months — the blockbuster’s earnings this quarter were hit by expansion overseas, the company said.
TSMC share price.
Gross margin rose ahead of earnings, but that was offset by a mix of overseas fabrics, CFO Wendell Huang said on the earnings call. Margins will be further refined in the next “few years” as overseas textile projects “take off”, he added.
“President Trump’s leadership is encouraging companies to invest in American industry,” said Commerce Secretary Howard Lutnick in a statement.
“TSMC’s announcement of an additional $100 billion in investment following our historic trade and investment agreement with Taiwan will create tens of thousands of American jobs and bring semiconductor manufacturing back to America.”
While other Asian chipmakers, including SK Hynix, are developing US facilities, TSMC has made the biggest commitment. Its aggressive US expansion is exposing it to higher production costs, creating a potential headwind on margins.
Political pressure
On Thursday, TSMC reported a 77.4% year-over-year jump in second-quarter profit, topping previous estimates and marking another record-breaking quarter for the world’s largest contract manufacturer.
It is also growing strongly in the US, as the company continues to see a “multi-year trend in demand” from its customers, TSMC’s Huang told CNBC.
Political pressure is another important driver of that expansion overseas.
“Billions of dollars in investments by TSMC and other semiconductor companies are the result of President Trump’s trade and economic policy, from the historic trade agreement with Taiwan to the renegotiation of investments in the CHIPS program,” a White House spokesperson told CNBC.
Building in the US is very expensive.
“Broadly speaking, we estimate that TSMC’s US chips cost 20-50% more than those manufactured in Taiwan, depending on the timing of subsidies, tax credit recognition and other cost fluctuations,” Phelix Lee, senior equity analyst at Morningstar, told CNBC. Lee added that he expects customers to bear the additional cost of production.
TSMC is expected to raise prices for advanced and mature chip production by up to 10% by 2027, the Nikkei reported on Tuesday. TSMC told CNBC it does not comment on pricing.
“What helps TSMC is the lack of any competition,” Gaurav Gupta, vice president analyst at Gartner, told CNBC.
Because of TSMC’s dominance in the chip market, “a large portion of the increased costs will have to be borne by its customers, who are looking to diversify or be mandated by the US government to buy local chips,” Gupta said.
Margins
The company predicts the reduction in gross margin from the increase in foreign textiles in the next few years will be 2% to 3% in the first stages, expanding to 3% to 4% in the last stages, said Huang.
“This is a margin difference that TSMC can afford because of its very high ratings,” said Gil Luria, head of technology research at DA 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 domestic manufacturing cuts, “customers are increasingly looking for geographic diversification after Covid disrupted global procurement,” Morningstar’s Lee said.
“Customers are facing geopolitical, logistical, and other supply chain disruptions,” he added. “We expect the pressure on the US to continue beyond Trump, although it is not clear how the carrot and stick will be distributed.”
