TSMC's U.S. Manufacturing Push Squeezes Margins as Trump Tariff Pressure Mounts

Taiwan Semiconductor Manufacturing Co. posted a 77.4% jump in second-quarter profit year on year, clearing analyst estimates by a wide margin, but the world's largest contract chipmaker is warning investors that its aggressive expansion into American manufacturing will weigh on earnings for years to come.

TSMC's second-quarter gross margin came in at 67.7%, up from 66.2% in the first quarter and ahead of the company's own guidance. CFO Wendell Huang said on an earnings call, however, that dilution from overseas fabrication facilities offset those gains — and that margins will face further pressure over the next "several years" as those projects ramp up.

The company forecasts gross margin dilution from overseas fab expansion of 2% to 3% in the early stages, widening to 3% to 4% in the later stages, Huang said.

The expansion is being driven, in part, by sustained political pressure from President Donald Trump, who has repeatedly threatened tariffs on companies that manufacture products outside the United States since returning to office in 2025. TSMC has announced a total of $200 billion in U.S. manufacturing commitments since then, including a $100 billion investment in advanced semiconductor manufacturing and packaging facilities unveiled last week.

"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," a White House spokesperson told CNBC.

Commerce Secretary Howard Lutnick, in a statement, said TSMC's latest commitment "will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to America."

Building in the United States carries a steep cost premium. Phelix Lee, senior equity analyst at Morningstar, told CNBC that TSMC's U.S.-produced chips are estimated to cost 20% to 50% more than those manufactured in Taiwan, depending on subsidy timing, tax credit recognition, and other cost fluctuations. Lee added that he expects customers to absorb more of those higher production costs over time.

TSMC told CNBC it does not comment on pricing. Separately, Nikkei reported Tuesday that the company is preparing to raise prices for both advanced and mature chip production by up to 10% in 2027.

Analysts say TSMC's dominant market position gives it unusual leverage to pass costs downstream. "What helps TSMC is lack of any material competition," Gaurav Gupta, VP analyst at Gartner, told CNBC. Because of TSMC's hold on leading-edge nodes, "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.

Gil Luria, head of technology research at D.A. Davidson, offered a similar view. "This is a margin difference TSMC can afford because of its very high overall margins," he said.

TSMC's market cap has risen more than 100% in the past 12 months, buoyed by surging demand tied to the artificial intelligence build-out. The company said it continues to see a "multiyear demand mega trend" from its customers. Other Asian chipmakers, including SK Hynix, are also developing U.S. facilities, though none have matched the scale of TSMC's commitments.

Morningstar's Lee noted that demand for geographical diversification predates the current administration, pointing to supply chain disruptions during the Covid pandemic as a catalyst. "Customers are bracing for geopolitical, logistical, and other disruptions to the supply chain," he said, adding that pressure for U.S.-made chips is likely to "persist beyond Trump."

With overseas fab projects still in their early ramp-up phases, TSMC's margin trajectory over the next several years will serve as a closely watched test of whether political imperatives and semiconductor economics can be reconciled — and at what cost to the chipmaker's bottom line.

Disclaimer