How much of its profit will TSMC lose by building a factory in the US?

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Trump’s “Made in America” pressure is turning into real profit costs for TSMC. While the world’s largest foundry has set a quarterly profit record, it has also, for the first time, clearly quantified the degree of gross margin erosion from its overseas expansion, and this pressure will intensify in the coming years.

TSMC’s net profit surged 77.4% year-over-year this quarter, setting a new record. But behind the stellar results, the expansion of overseas fabs is already starting to drag down overall profit margins. TSMC CFO Wendell Huang said on the earnings call that although margins exceeded previous guidance, they were offset by the dilution effect of overseas fabs. He warned that as overseas projects come online over the next “several years,” profit margins will face further pressure.

At the same time, according to Nikkei, TSMC plans to raise prices for both advanced and mature process chips by up to 10% in 2027, potentially passing part of the cost pressure onto customers.

Since Trump’s return to the White House in 2025, TSMC has announced a cumulative $200 billion commitment to US investments, including a $100 billion advanced semiconductor manufacturing and packaging facility investment plan disclosed just last week. A White House spokesperson told CNBC, “TSMC and other semiconductor companies’ multi-trillion dollar investments are the direct result of Trump’s trade and economic policies.”

Political Pressure Drives Expansion, Cost Becomes Increasingly Apparent

Since Trump’s return to power, the ongoing tariff threats against companies not manufacturing in the US have accelerated TSMC’s large-scale investment in the country.

US Commerce Secretary Howard Lutnick stated, “President Trump’s leadership is encouraging companies to invest in American manufacturing. TSMC’s additional $100 billion investment will create tens of thousands of US jobs and bring advanced semiconductor manufacturing back to America.”

However, building plants in the US has significantly increased costs. Morningstar senior equity analyst Phelix Lee told CNBC, “Overall, we estimate that TSMC’s chip production costs in the US are 20% to 50% higher than in Taiwan, depending on subsidy timing, tax credits, and other cost fluctuations.” He also expects customers will bear more of the extra costs resulting from these increased production prices.

Gross Margin Dilution Quantified, But Still Controllable

TSMC has, for the first time, given a specific forecast for the impact of overseas expansion on gross margins: Huang said that as overseas fab projects progress, the early-stage gross margin dilution is expected to be 2% to 3%, expanding to 3% to 4% in later stages.

D.A. Davidson tech research head Gil Luria believes this dilution is still within TSMC’s absorbable range given its current profit levels. TSMC’s second-quarter gross margin was 67.7%, a slight uplift from 66.2% in the first quarter. “TSMC’s overall profit margins are extremely high, and this difference is within what it can afford,” Luria said.

Among other Asian chipmakers, SK hynix and others are also developing US facilities, but TSMC’s investment commitments are far greater than its peers, making its cost exposure much more prominent.

Monopoly Position Offers Cushion, Cost Pass-Through Expected

Though facing margin pressure, TSMC’s dominance in advanced process technology provides it with significant bargaining power.

Gartner VP analyst Gaurav Gupta told CNBC, “The advantage for TSMC is it has virtually no real competitors.” Because of this, “most cost increases will have to be borne by its customers—who may either seek to diversify their supply chains or be compelled by US government policies to buy domestically made chips.”

Morningstar’s Phelix Lee also expects “Made in America” pressure to continue beyond Trump’s term, but “how incentives and penalties are distributed is still unclear.” He noted that disruptions from the pandemic have already prompted customers to seek geographic diversification. “Clients are preparing for geopolitical, logistical, and other supply chain disruption risks.”

TSMC, for its part, says it continues to see a “multi-year demand trend” from clients, and US expansion is driven by strong customer demand. Over the past 12 months, boosted by the AI boom, TSMC’s market value has risen by more than 100%.

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