TSMC's U.S. Expansion Comes at a Cost: Chip Production Costs Could Be 50% Higher Than in Taiwan, Pressuring Margins

CNBC reported on Wednesday (22nd) that U.S. President Trump's push for advanced semiconductor manufacturing in America is imposing higher costs on Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker. As overseas expansion progresses, it is beginning to erode the company's gross margins. Although the artificial intelligence (AI) boom has driven TSMC's market capitalization to more than double over the past 12 months, impressive profits are now being offset by the growing financial burden of operating factories in the U.S.

After Trump returned to the White House in 2025, he repeatedly threatened tariffs on companies not manufacturing in the U.S. In response, TSMC expanded its U.S. footprint, committing a total investment of $200 billion to date. This includes a recent announcement of an additional $100 billion to build advanced semiconductor manufacturing and packaging facilities in the United States.

U.S. Secretary of Commerce Howard Lutnick stated that Trump's leadership is encouraging corporate investment in American manufacturing. TSMC's additional $100 billion investment will create tens of thousands of U.S. jobs and bring advanced semiconductor production back to America.

While other Asian chipmakers like SK Hynix are also building factories in the U.S., TSMC's investment scale far exceeds that of its peers. This aggressive expansion in U.S. capacity is exposing TSMC to significantly higher production costs, which could become a drag on future gross margins.

TSMC reported second-quarter profits up 77.4% year-on-year last week, far exceeding market expectations and setting a new quarterly record. The gross margin for the second quarter was 67.7%, up from 66.2% in the first quarter and above the company's own forecast. However, CFO Huang Ching-yi noted during the earnings call that overseas wafer fabs continue to dilute gross margins.

Huang estimated that as overseas fabs gradually ramp up capacity over the next few years, they will initially reduce gross margins by 2 to 3 percentage points, with the impact potentially widening to 3 to 4 percentage points later. TSMC remains optimistic about long-term customer demand trends, but acknowledged that political pressure is a key driver accelerating overseas expansion.

A White House spokesperson said TSMC's and other semiconductor companies' massive investments are the result of Trump's trade and economic policies, including the U.S.-Taiwan trade agreement and renegotiation of the CHIPS Act investment terms.

However, chip production costs in the U.S. are clearly higher than in Taiwan. Morningstar senior equity analyst Phelix Lee estimates that depending on subsidy timing, tax credit recognition, and other cost variables, TSMC's U.S.-made chip costs could be 20% to 50% higher than in Taiwan—but expects customers to absorb most of the additional cost.

The Nikkei reported on Tuesday that TSMC plans to raise prices for both advanced and mature processes by up to 10% by 2027. TSMC declined to comment on pricing matters.

Gaurav Gupta, Vice President and Analyst at Gartner, pointed out that the lack of a credible competitor is a key advantage for TSMC. Because TSMC dominates the advanced process market, customers seeking supply diversification or required by the U.S. government to source domestic chips may have to absorb most of the extra costs.

Gil Luria, Head of Technology Research at D.A. Davidson, believes TSMC's overall gross margin is so high that it can afford the gap caused by overseas production. Analysts also note that the push for U.S. manufacturing isn't just due to Trump's policies. After the pandemic disrupted global supply chains, customers increasingly value production diversification to mitigate geopolitical, logistics, and other supply disruption risks.

Therefore, even after Trump leaves office, pressure for U.S. manufacturing may persist. However, how future administrations will balance subsidies and penalties remains unclear.