Jensen Huang announced last week that Nvidia's next-generation processors will be manufactured, at least in part, at TSMC's new Arizona facility. The announcement was greeted with bipartisan applause in Washington, where semiconductor sovereignty has become one of the rare issues that unites both parties.

The economics tell a more complicated story. TSMC Arizona produces chips at a cost premium estimated by analysts at between 30 and 50 percent above TSMC Taiwan. That premium ultimately flows downstream to Nvidia's customers — the data center operators and cloud providers who have bet their businesses on the continued scaling of AI compute.

For now, the demand is strong enough that the premium barely registers. But some analysts worry that the long-term consequences of a higher cost structure in American semiconductor manufacturing could reshape the competitive landscape in ways that benefit neither American companies nor American security interests.