Trump pushes “Made in America” to push up costs, and TSM.US warns that expanding overseas production will erode profit margins for a long time

The Zhitong Finance App notes that pressure from US President Trump to manufacture advanced semiconductors in the US is driving up the costs and squeezing profit margins of TSM.US (TSM.US), the world's largest chip maker.

After Trump returned to power in 2025, the president repeatedly threatened to impose tariffs on companies that did not manufacture products in the US.

Since then, TSMC has announced a total investment commitment of 200 billion US dollars in the US, including an additional 100 billion US dollars in advanced semiconductor manufacturing and packaging facilities announced last week.

TSMC said that despite being driven by the artificial intelligence (AI) boom — its market capitalization has grown by more than 100% in the past 12 months — strong earnings this quarter were still affected by overseas expansion.

TSMC CFO Huang Renzhao said during the performance conference call that gross margin growth was higher than expected, but it was offset by dilution effects brought about by overseas fabs. He added that as overseas fab projects “climb in capacity”, profit margins will be further diluted in the “years” ahead.

US Secretary of Commerce Howard Lutnick said in a statement: “President Trump's leadership is driving companies to invest in American manufacturing.” “Following the historic trade and investment agreement, TSMC announced an additional $100 billion investment, which will create tens of thousands of US jobs and bring advanced semiconductor manufacturing back to the US.”

While other Asian chipmakers, including SK Hynix, are also building US facilities, TSMC's commitment is the largest to date. Its aggressive US expansion has exposed it to higher production costs, which poses a potential drag on profit margins.

political pressure

On Thursday, TSMC announced a 77.4% year-on-year increase in net profit for the second quarter, far exceeding expectations and hitting another record high for the world's largest chip foundry.

Huang Renzhao told the media that since the company continues to see the “multi-year demand trend” brought by customers, the company is also aggressively expanding its business in the US.

Political pressure is another key driver of this overseas expansion.

A White House spokesman said, “The trillion-dollar investment of TSMC and other semiconductor companies is the result of President Trump's trade and economic policies, from the historic trade agreement reached with Taiwan to the renegotiated Chip Act investment plan.”

Building a factory in the US is much more expensive. Felix Lee, a senior stock analyst at Morningstar, said: “Overall, we estimate that chips produced by TSMC in the US cost 20% to 50% higher than those made in Taiwan, depending on when subsidies are paid, tax credit confirmation, and other cost fluctuations.” Lee also added that he expects customers to bear more of the increased production costs.

TSMC plans to raise the OEM price of both advanced and mature process chips by up to 10% in 2027. TSMC told the media that it would not comment on the price issue.

Gartner vice president and analyst Gaurav Gupta said, “What is good for TSMC is the lack of substantial competitors.”

Gupta said that due to TSMC's monopoly position in the cutting-edge process market, “most of the increased costs will have to be absorbed by its customers, who either seek supply chain diversification or have received an executive order from the US government to buy local chips.”

profit margin

Huang Renzhao said that in the next few years, the company expects the dilution effect on gross margin to 2% to 3% in the early stages of the decline in production capacity of overseas fabs, and expand to 3% to 4% in the later stages.

“Given that TSMC's overall profit margin is very high, this is an acceptable margin gap,” said Jill Luria, head of technology research at D.A. Davidson. TSMC's gross margin for the second quarter was 67.7%, slightly higher than the first quarter's 66.2%.

Morningstar's Lee said that despite Trump's redoubling calls for local manufacturing, “after the COVID-19 pandemic disrupted global supply chains, customers are also increasingly seeking diversified geographical distribution.”

He added, “Customers are preparing for possible geopolitical, logistical, and other disruptions to the supply chain. We expect the pressure of 'Made in America' to continue beyond Trump's term, although it is uncertain how the 'turnip plus bar' policy will be distributed at that time.”