The U.S. Commerce Department has recently made headlines by finalizing a significant $6.6 billion subsidy for the American branch of Taiwan Semiconductor Manufacturing Company (TSMC) to support semiconductor production in Phoenix, Arizona. This contract, announced on Friday, is the first major deal completed under a $52.7 billion initiative set up in 2022 to boost semiconductor manufacturing in the United States.
This formal agreement follows a preliminary deal announced in April and comes just before President-elect Donald Trump, who has been critical of the program, assumes office. In an earlier agreement, TSMC committed to increasing its investment to $65 billion and plans to construct a third factory in Arizona by 2030.
TSMC aims to produce the most advanced chips using 2 nanometer technology at its second Arizona factory, which is scheduled to start production in 2028. The company has also agreed to utilize its latest chip-making technology, known as “A16,” at the Arizona site.
During an interview, Commerce Secretary Gina Raimondo expressed optimism regarding this development, noting that there were skeptics doubting whether TSMC would commit to such advanced technology in the U.S. She emphasized that the company is indeed working on some of its most sophisticated chips in the country.
As part of the agreement, TSMC is eligible for up to $5 billion in low-interest government loans and will receive funding as it achieves specific project milestones. Officials anticipate releasing at least $1 billion to TSMC by the end of the year.
In a notable condition of the contract, TSMC has agreed not to engage in stock buybacks for five years, although there may be some exceptions. Additionally, the company will share any extra profits with the U.S. government under an “upside sharing agreement.” TSMC’s CEO, C.C. Wei, stated that this deal will help fast-track the development of cutting-edge semiconductor technologies in the U.S.
The push for these investments stems from the Chips and Science Act, passed by Congress in 2022, which aims to enhance domestic semiconductor production—a critical factor as currently, no leading-edge chips are manufactured in the U.S.
Raimondo pointed out that these achievements were not coincidental; it took considerable effort to persuade TSMC to expand operations in the U.S. and to encourage American companies to purchase domestically produced chips. She stressed that national security considerations play a significant role in these decisions.
The Commerce Department has so far allocated $36 billion for semiconductor projects, including funds for major players like Samsung, Intel, and Micron Technology. Officials are racing to finalize these agreements before President Biden leaves office on January 20.
In related news, there have been reports that the Commerce Department has instructed TSMC to suspend shipments of advanced chips to Chinese clients. While Raimondo did not confirm this directive, she emphasized the importance of balancing offensive investments with defensive measures to protect U.S. technologies and ensure compliance with export controls. She reiterated the government’s commitment to national security and its vigilant oversight of companies receiving subsidies.
