Trump's Push for US-Made Chips Squeezes TSMC's Profit Margins
US production pressure drives up TSMC's costs amid political mandates.
1US Manufacturing Pressure
Following Donald Trump's return to power, tariff threats against companies not producing in the US have escalated. TSMC responded with $200B in commitments, including a recent $100B semiconductor facility. However, this expansion significantly increases the company's operational costs.
2Margin Compression
Despite TSMC's record quarterly profits, overseas fab costs diluted margins. CFO Wendell Huang warned this impact will intensify, projecting 2-3% margin erosion initially, widening to 3-4% in later stages. The company's Q2 gross margin stood at 67.7%, slightly up from 66.2% in Q1.
3US Cost Disadvantage
Morningstar's Phelix Lee estimates US-made chips cost 20-50% more than Taiwan-produced equivalents, with customers expected to absorb most increases. TSMC plans to raise chip prices by up to 10% by 2027, though the company declined to confirm pricing strategies.
4Political Drivers
The White House credits Trump's trade policies for TSMC's investments. Commerce Secretary Howard Lutnick emphasized job creation and tech repatriation benefits. However, these politically motivated expansions disrupt TSMC's cost structure amid already complex global operations.
5Market Dominance Leverage
Gartner's Gaurav Gupta notes TSMC's leading-edge node dominance allows cost pass-through to clients, especially those with US government-mandated local procurement requirements. With no material competition, customers face limited alternatives despite price hikes.
6Supply Chain Realignment
Post-Covid geographical diversification demands and geopolitical risks accelerate TSMC's US expansion. Analysts expect made-in-US pressures to outlast Trump's administration, though the incentive/punishment balance remains unclear in future policy landscapes.