Trump's Push for US AI Chips Squeezes TSMC Margins

President Donald Trump's insistence on relocating advanced semiconductor manufacturing to the United States is driving up costs and compressing profit margins for TSMC, the world's largest contract chip manufacturer. Since Trump returned to power in 2025, he has repeatedly threatened tariffs on companies that do not produce their goods domestically.

As a result of this pressure, TSMC has committed to investing $200 billion in U.S. manufacturing facilities. This includes a recently announced $100 billion investment in advanced semiconductor fabrication and packaging plants within the U.S. While the company benefits from a booming AI market, which has seen its market capitalization more than double in the past year, rising overseas expansion costs are impacting its profitability, according to CFO Wendell Huang.

"Gross margin increased ahead of guidance, but that was offset by dilution from overseas fabs," Huang stated during an earnings call. He further indicated that margins would continue to be diluted over the "next several years" as these international projects ramp up. Manufacturing in the U.S. is significantly more expensive, with estimates suggesting TSMC's U.S.-produced chips could cost 20-50% more than those made in Taiwan.

The White House contends that President Trump's policies are incentivizing companies to invest in American manufacturing. Commerce Secretary Howard Lutnick commented that TSMC's investments will generate tens of thousands of U.S. jobs and facilitate the return of advanced semiconductor production to the country. While other chipmakers like SK Hynix are also establishing U.S. operations, TSMC's substantial commitment makes it particularly exposed to higher production costs, potentially creating a persistent headwind for its financial margins.