The world’s largest contract chipmaker is continuing to expand outside of Taiwan in response to customer demand and geopolitical pressure.

In late August, naysayers of Taiwan Semiconductor Manufacturing Co.’s (TSMC) international expansion had a brief “I told you so” moment amid speculation that the U.S. government planned to take an equity stake in the world’s largest contract chipmaker.

It did not last long: TSMC Chairman C.C. Wei quashed the speculation on August 23 when he told reporters that the Trump administration had announced it “will not take a stake” in the company.

The following day, a TSMC spokesperson told Taiwan’s Central News Agency that the company has never held discussions with the United States on Washington taking shares in TSMC.

As it turns out, the Trump administration did take a 10% stake in American chipmaker Intel, which the company announced on August 22, but that move had been expected. Analysts had speculated that some of the grants provided to semiconductor manufacturers under the CHIPS and Science Act might be converted into equity, reflecting the administration’s push for a return on taxpayer investments. But U.S. officials clarified that they do not intend to take stakes in semiconductor companies that are investing in the United States while receiving funding under the US$52.5 billion program.

TSMC has committed to investing more in its U.S. operations than any other CHIPS Act awardee. Its overall U.S. investment swelled by a factor of 2.5 in March when it pledged an additional US$100 billion to build three new fabrication facilities (known as fabs), an R&D center, and two advanced packaging facilities in Arizona. The current tally totals US$165 billion.

Explaining the rationale behind the mammoth investment, Wei said in a statement: “Back in 2020, thanks to President Trump’s vision and support, we embarked on our journey of establishing advanced chip manufacturing in the United States. This vision is now a reality.”

Wei noted that artificial intelligence “is reshaping our daily lives and semiconductor technology is the foundation for new capabilities and applications.” Given the success of the company’s first fab in Arizona, along with needed government support and strong customer partnerships, TSMC is significantly expanding its U.S. investment, he added.

At a March press conference, Wei disclosed that TSMC’s U.S. capacity is fully booked through 2025 and 2026, with demand expected to continue into 2027. The TSMC chairman emphasized that the company’s strategy has always been to build production lines based on customer demand, which he described as the main reason for its decision to significantly expand investment in Arizona.

Analysts cite solid commercial reasons for TSMC’s new U.S. investment. The Arizona fabs are currently producing mobile and high-performance computing (HPC products), “not only for American customers, but also for clients aiming to maintain their presence in the U.S. market,” says Joanne Chiao, an analyst at the market intelligence firm TrendForce. With the addition of advanced packaging fabs, the company is expected to attract more U.S.-based HPC customers, she explains.

Investing in Japan and Germany

While TSMC’s U.S. investments have garnered the most attention, the company is also expanding its presence in Japan and Germany. Compared to the U.S. investments, the expansions in Japan — through a joint venture known as Japan Advanced Semiconductor Manufacturing (JASM) — and in Germany are smaller, less overtly geostrategic, and more focused on a single industry: automotive.

Located on Japan’s southernmost main island of Kyushu, JASM began mass production at its first fab in the fourth quarter of 2024. Production at its second Kyushu fab was slated to begin in the first quarter of 2025 but was reportedly delayed due to traffic congestion. Wei said during a June call with investors that construction is scheduled to start later this year “subject to the readiness of local infrastructure.”

Taiwanese technology supply chain newspaper DigiTimes noted in a June report that Japan’s shortcomings in advanced semiconductor processing have left many of its companies increasingly dependent on TSMC. The Taiwanese chipmaker’s sales in Japan have jumped from just US$15 million in 1997 to US$4.3 billion in 2024. TSMC delivered 1.49 million wafers to Japan in 2024, about 10% of its global output, DigiTimes said. TSMC’s largest customers in Japan are Sony, Toyota, and automotive parts manufacturer Denso. All three companies are investors in JASM.

Japan has a longstanding presence in the upstream semiconductor sector and holds a leading position in areas such as equipment and raw materials, notes Chiao. “Establishing a plant in Japan can also appeal to customers concerned about geopolitical issues by offering an out-of-China production site,” she says.

Cheng Kai-an, a senior industry analyst at the Taipei-based, semi-governmental Market Intelligence & Consulting Institute (MIC), expects that TSMC’s presence in Japan will facilitate closer cooperation with local IDM (integrated device manufacturer) companies and system integrators, particularly supporting market expansion in Japan’s automotive chip sector.

In Germany’s Dresden, TSMC’s joint venture European Semiconductor Manufacturing Co. began construction of its first fab in September 2024 and is expected to start mass production by the end of 2027. Europe is home to many automotive-related customers, including end-market car manufacturers and automotive IC suppliers, notes TrendForce’s Chiao.

“This is why TSMC chose to establish its Germany plant as a joint venture with Bosch, Infineon, and NXP,” she says. “Building a plant in Germany can help TSMC gain a stronger foothold in the European automotive supply chain, and accordingly, the fab is planned to focus primarily on 16/12-nanometer and 28/22-nanometer specialty processes.”

TSMC also plans to launch its first European design hub in Germany in Q3. TrendForce said in a May research note that the move marks a strategic shift for the company, which has historically focused on chip production. “However, the decision may have been driven by a shortage of advanced design expertise in Europe and the need to closely support customers in maximizing the value of the wafer fab TSMC is constructing in Dresden,” TrendForce said.

Staying the course

Looking ahead, a key challenge for TSMC will be balancing its responsibilities to investors and systemic importance to Taiwan with America’s growing preference for domestically sourced semiconductors — a bipartisan trend that seems likely to endure for many years to come.

As Arizona Senator Mark Kelly said in a March statement, “By boosting domestic microchip development and production, we’re reducing reliance on foreign supply chains and making sure America leads the way in the industries of the future.”

While it has not done so yet, the Trump administration may eventually impose steep tariffs on semiconductor imports to further incentivize domestic chip manufacturing. At an August 6 press briefing, President Trump announced that the United States planned to impose a 100% tariff on semiconductor imports.

Since TSMC has already invested heavily in the United States, its semiconductor products should be exempt from the full 100% tariff, says MIC’s Cheng. But the tariff rate that will apply to TSMC’s exports to the United States is still uncertain. Cheng expects that the levies on TSMC’s exports will effectively become additional costs borne by chip importers such as Nvidia and Apple, “altering the cost and revenue structures for both TSMC and its customers.”

J. Travis Mosier, an adjunct senior fellow at the Center for a New American Security in Washington, D.C., and a former Commerce Department official, says TSMC should be able to continue thriving despite the unpredictability of the Trump administration’s trade policies.

“I would never underestimate the savvy of TSMC executives and their ability to navigate headwinds facing the company,” he says. “Imagine having to continually overcome the laws of physics and navigate an increasingly precarious global supply chain, while obviating cyber and other related PRC intrusions aimed at stealing valuable IP and processing technology. By comparison, the current business environment is a pleasure cruise.”

Mosier acknowledges that it is likely the Trump administration has encouraged the chipmaking giant to produce its most advanced node in the United States — an issue of concern for the Taiwanese government, given TSMC’s strategic importance for Taiwan’s national security. In March, then-Minister of Economic Affairs Kuo Jyh-huei stated that TSMC would not introduce its most advanced technologies into the United States in 2026.

“The general rule that TSMC follows is to keep its U.S. operations at least one generation behind Taiwan’s fabs,” Mosier says.

However, during TSMC’s first-quarter earnings call, Wei said the company plans to produce 30% of its advanced 2-nanometer chips in the United States and make its Fab 21 Arizona site an independent semiconductor manufacturing cluster. “It will also create greater economies of scale and help foster a more complete semiconductor supply chain ecosystem in the U.S.,” he said. Mosier expects TSMC’s expanded investment in Arizona to draw more Taiwanese suppliers already operating in the United States, and to encourage second- and third-tier suppliers to consider establishing a U.S. presence.