Why Taiwan Semiconductor Manufacturing Stock Is Sinking Today

Taiwan Semiconductor Manufacturing (NYSE: TSM) stock is sinking rapidly Thursday. The company's share price was down 4.3% as of 2:45 p.m. ET. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) was down 2.8%, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was down 3.8%.

TSMC and other semiconductor stocks roared higher yesterday after President Trump announced a 90-day suspension on "reciprocal tariffs" for all countries except China, but those gains are being eroded in Thursday's trading. As of this writing, the chip fabrication leader is now down 23% across 2025's trading.

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TSMC stock drops on trade war fears

Investors got some welcome news with President Trump's announcement of a pause on reciprocal tariffs yesterday, but there was a significant catch. While all other countries will see import taxes at a rate of 10% over the next three months, Trump announced that tariffs on products imported from China would be raised from 104% to 125%. The Trump administration then clarified today that it was actually implementing on additional 125% tariff on top of an existing tariff of 20% -- bringing the total import tax on Chinese goods to 145%.

What's next for TSMC?

While a halt on additional tariffs for Taiwan means that chips imported from TSMC will only be hit with a 10% import tax, investors also have to consider that the company is at the center of rising tensions between the U.S. and China. As the world's leading manufacturer of advanced semiconductors, TSMC's output is crucial to global supply chains and the advancement of artificial intelligence (AI) technologies.

Some reports suggest that China is aiming to invade or gain greater control over Taiwan by 2027, and the strategic importance of TSMC's foundry output could be a big driver behind the potential move. So while the stock looks cheaper after recent sell-offs, investors should understand the geopolitical risks involved.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.