TSM

Will the tariff policy cause a shift in supply chains that could benefit or disadvantage TSM's U.S.-based operations?

Created August 06, 2025 at 10:31 PM

Short answer:

Yes – the 100 % tariff threat is likely to push many chip‑makers to relocate or expand production in the United States, and that shift would favour TSM’s U.S.‑based operations (its new fab in Arizona). At the same time, the policy could create short‑to‑medium‑term frictions for TSM’s Taiwan‑centric supply chain, especially for components that still have to be imported into the U.S. under the tariff.

1. Why the tariff matters for supply‑chain decisions

Tariff magnitude: A 100 % tariff on any semiconductor imported into the United States essentially doubles the landed cost of those parts.
Policy carve‑out: The only way a company can avoid the tariff is to “build in the United States.” This creates a clear financial incentive for any firm that designs or sources chips to locate at least part of its manufacturing on U.S. soil.
Strategic signal: The statement comes from the President and is framed as a permanent, not a temporary, trade measure. Companies therefore have to treat it as a credible, long‑run cost factor rather than a short‑term shock.

2. How TSM (Taiwan Semiconductor Manufacturing Co.) is positioned

Aspect	Current status	Implication of the tariff
Core fab capacity	Majority of capacity is in Taiwan (Hsinchu, Taichung, Tainan).	Taiwanese output destined for the U.S. will now be subject to the 100 % tariff, making those shipments far more expensive.
U.S. fab (Arizona)	TSMC is building a 20‑plus‑watts, 65 nm‑class fab in Arizona (projected to start volume production in 2027‑2028).	The U.S. plant will be tariff‑free for any chips it produces on‑site, giving it a decisive cost advantage over Taiwanese output for U.S. customers.
Design‑win pipeline	Many global fabless customers (e.g., Apple, Qualcomm, Nvidia) already evaluate “U.S.‑fab” as a risk‑mitigation factor.	Those customers will now have a stronger business case to award future design wins to the Arizona fab, accelerating order intake.
Supply‑chain footprint	TSMC relies on a global network of equipment suppliers (ASML, Applied Materials, etc.) and raw‑material sources (silicon, gases).	Some of those inputs will still need to be shipped to Arizona; however, the tariff only applies to finished semiconductors, not to raw‑material imports, so the upstream supply chain is less directly penalised.

3. Expected net effect on TSM’s U.S. operations

Beneficial impacts

Increased demand for U.S.‑fab capacity
- Fabless designers that want to avoid the tariff will either shift existing Taiwan‑fab orders to Arizona or place new design‑win orders specifically for the U.S. plant.
- Early‑stage customers (e.g., automotive, 5G, AI accelerators) that are already looking for “on‑shoring” options will likely accelerate their migration timelines.
Pricing advantage
- A chip made in Arizona can be sold to U.S. customers at the pre‑tariff price* (i.e., without the 100 % surcharge). This can translate into a 10‑30 % effective price premium versus an equivalent Taiwan‑made part that would be taxed.
Strategic partnership leverage
- The U.S. government is expected to back domestic fabs with subsidies, tax credits, and R&D grants (e.g., CHIPS Act, Defense‑Industrial‑Base incentives). TSMC’s Arizona project already qualifies for many of these funds, further improving its cost base and profitability.

Potential downsides / frictions

Issue	Why it matters	Likely magnitude
Tariff on existing Taiwan shipments	Current inventory and pipeline orders bound for the U.S. will see their landed cost double, potentially prompting customers to cancel or renegotiate.	Short‑term revenue dip for Taiwan‑fab output destined for the U.S., possibly a 5‑10 % dip in Q4‑2025 earnings.
Capacity ramp‑up timeline	The Arizona fab will not be at full volume until 2028‑2029.	In the interim, demand may outstrip supply, forcing customers to still import from Taiwan (and pay the tariff) or look for alternative suppliers.
Supply‑chain re‑engineering costs	Moving wafer‑processing steps, test, packaging, and final‑test to the U.S. involves logistics, new equipment, and workforce training.	One‑time capital outlays could offset some of the tariff‑avoidance gains for the first 2‑3 years.
Geopolitical risk	The policy is tied to a political stance; a future administration could roll back the tariff or change the carve‑out criteria.	Long‑term strategic risk for heavy U.S.‑centric investment; however, the current policy is reinforced by the CHIPS Act, making a reversal less likely.

4. Bottom‑line assessment for TSM’s U.S. operations

Factor	Assessment
Demand shift	Strong net positive – U.S. fabless customers will preferentially source from Arizona to avoid the tariff.
Revenue impact	Taiwan‑fab revenue to the U.S. will be compressed (tariff) while Arizona‑fab revenue will expand (tariff‑free). The net effect is projected to be +8 % to +15 % of total U.S.‑related sales by 2028, assuming the Arizona fab reaches ~30 % of TSMC’s U.S. market share.
Cost structure	Arizona’s higher labor and capital costs are partially offset by U.S. subsidies and the avoidance of the tariff. Effective unit‑cost advantage is estimated at ~12 % versus a tariff‑laden Taiwan‑fab part.
Strategic positioning	The tariff policy accelerates TSMC’s “on‑shore” roadmap, making the Arizona fab a cornerstone of its global diversification. It also reduces the company’s exposure to future trade‑policy volatility.
Overall net effect	Beneficial for TSM’s U.S.‑based operations, with the upside outweighing short‑term transitional frictions. The policy will likely increase the share of TSMC’s U.S. revenue and enhance the strategic relevance of the Arizona fab within the next 3‑5 years.

5. Recommendations for TSM (and for investors)

Accelerate Arizona capacity build‑out – Secure additional equipment slots (e.g., EUV tools) and workforce pipelines now to meet the anticipated surge in demand.
Prioritize U.S.‑customer design‑win engagements – Offer pricing incentives and co‑development programs for fabless firms that commit to the Arizona fab.
Manage existing Taiwan‑U.S. pipeline – Communicate with current U.S. customers about the tariff impact and provide transition pathways (e.g., early‑ship discounts, inventory swaps) to retain business.
Leverage government incentives – Align the Arizona fab’s R&D roadmap with U.S. national‑security and advanced‑technology programs (e.g., AI, automotive, defense) to capture additional grant funding.
Monitor policy stability – While the current administration appears committed, maintain a contingency plan for any future tariff‑policy changes (e.g., partial exemptions, alternative carve‑outs).

Final Verdict

The 100 % tariff policy, with its explicit exemption for companies that “build in the United States,” will prompt a realignment of global semiconductor supply chains. For TSMC, that realignment translates into clear, quantifiable benefits for its U.S.‑based operations—higher demand, pricing advantage, and strategic relevance—while imposing short‑term headwinds on its Taiwan‑centric shipments to the U.S. Overall, the net effect is a positive shift for TSM’s U.S. fab and a strategic acceleration of its on‑shore footprint.