Taiwan’s TSMC Gets $6.6 Billion for Another Factory in Arizona

There aren’t many areas where I agree with the Biden administration but the CHIPS Act is one that I genuinely hope will work. The ACT passed both the House and Senate with bipartisan support and was signed into law in 2022. The idea was to award grants to chipmakers willing to build new facilities here in the US. That meant giving awards to US companies like Intel and Micron but it also means offering billions to lure Taiwan’s TSMC, the largest chipmaker in the world by far, to build some new fabrications facilities in Arizona. Today, the Biden administration announced another $6.6 billion would be granted to TSMC.

The funds, which come from the bipartisan CHIPS and Science Act, will help support the construction of TSMC’s first major U.S. hub, in Phoenix. The company has already committed to building two plants at the site and will use some of the grant money to build a third factory in Phoenix, U.S. officials said on Sunday. TSMC will also increase its total investments in the United States to more than $65 billion, up from $40 billion.

Federal officials view the investment as vital for building up a reliable domestic supply of semiconductors, the small chips that power everything from phones and supercomputers to cars and fighter jets. Although semiconductors were invented in the United States, production has largely shifted overseas in recent decades. Only about 10 percent of the world’s chips are made in the United States.

The plan to lure TSMC to Arizona actually got rolling under the Trump administration, before the CHIPS Act. The plan for the first facility was announced in 2020.

The company has been counting on federal aid for years. Talks about a partially subsidized expansion in the United States began in 2019, during the Trump administration, according to company officials. TSMC first announced that it would build a new facility in Phoenix in May 2020, a project that company officials said would eventually require government subsidies to help address the higher cost of building and operating chip plants in the United States.

In December 2022, several months after the passage of the CHIPS Act, TSMC announced that it would build a second factory at the site, increasing its total investment to $40 billion from $12 billion.

But ever since then, the construction has been hitting roadblocks and the planned date of operation for these new factories keeps getting pushed back.

…last summer, TSMC pushed back initial manufacturing at its first Arizona factory to 2025 from this year, saying local workers lacked expertise in installing some sophisticated equipment. Last month, the company said the second plant wouldn’t produce chips until 2027 or 2028, rather than 2026, citing uncertainty about tech choices and federal funding…

“Nothing has failed yet,” said Emily Kilcrease, a senior fellow and the director of the energy, economics and security program at the Center for a New American Security, a Washington think tank. “But we’re going to have to see some progress and those factories actually coming online in the next few years for the program to be considered a success.”

The third plant announced today probably won’t open until 2030 at best. There are at least three factors slowing things down. One is that the government has been very slow to distribute the money thanks to red tape.

The most immediate threat to the timely construction is the National Environmental Policy Act, which requires large federally funded projects to pass environmental review before grants are released, regardless of whether they have already obtained state and local government permits. Full NEPA reviews took an average of 4.5 years between 2013 and 2018, according to a federal government report. Critics say each year of delay adds roughly 5% to the construction cost of a chip plant. 

A Senate-passed bill exempting major Chips Act projects from NEPA review has failed to gain traction in the House. Some Republicans want a wider permitting overhaul covering energy and other sectors. Some Democrats worry about diluting environmental standards.

“The process could take five years and that’s not the intention of why we are doing this thing,” said Sen. Mark Kelly (D. Ariz.), a lead author of the Senate bill. “We are trying to get these chips built here in the United States as soon as we possibly can.”

Another factor slowing things down: Dealing with unions. This story is from last August:

In Arizona, however, construction has been delayed by a shortage of skilled workers, TSMC says, and it is seeking to bring in workers from Taiwan to get construction back on track. 

“We are encountering certain challenges as there is an insufficient amount of skilled workers with…specialized expertise,” TSMC Chairman Mark Liu said during the company’s July 20 second-quarter earnings call. 

Liu’s remarks drew a sharp rebuke from Arizona trade unions, who say bringing in workers from overseas would undermine one of the key goals of the Chips Act—to create more domestic jobs in the industry.

“TSMC has shown a lack of respect for American workers,” the Arizona Building and Construction Trades Council said in a letter to members of Congress, asking them to block the issuance of visas to Taiwanese workers. Around 1,500 members sent copies of the letter to Washington. 

TSMC and the unions held talks and supposedly have worked this out but it’s another factor slowing things down. Finally, there’s the basic economics of building new factories. Two years ago there was a global shortage of chips that meant spending on factories made sense. But now there is a glut and companies are trying to decide whether it still makes sense to invest billions in plants that maybe aren’t needed.

Hanging over all of this is the reality of Taiwan’s precarious position on the global stage. China has made it clear that they intend to “reunify” Taiwan by any means necessary and that could create a massive global disruption given that TSMC currently makes about 90% of the world’s most advanced chips. So spending the money to build these fabs here in the US is a smart investment in our national security as well. We simply should not be so dependent on facilities that China intends to seize by force. 

If the worst happens, we need to have a backup plan. That could be what the CHIPS Act gives us if we can manage to cut through some of this red tape.