TSMC, the world’s largest chip OEM, is planning to build the world’s most advanced chip factory in Arizona to help the United States alleviate its concerns about the security of the chip supply chain. People familiar with the matter said that TSMC has negotiated and reached an agreement with the Donald Trump government, promising to manufacture semiconductors in the United States to create jobs, and to produce sensitive parts in the United States for national security reasons.

The plant is expected to cost billions of dollars, and relevant information may be announced as early as Friday.

Liu Deyin, chairman of TSMC, said in a recent analyst conference call: “we are now actively evaluating the plan to establish a wafer factory (i.e. chip factory) in the United States. At present, there is a big cost gap, but we are trying to narrow it.”

TSMC is the largest and most advanced chip foundry. Its factory is mainly located in Taiwan, China, which produces important parts of Apple design. Meanwhile, most well-known semiconductor companies, including Qualcomm, NVIDIA, Huawei and AMD, also rely on TSMC to produce chips. This makes TSMC a manufacturer of important parts of many electronic devices, including smart phones, laptops, servers supporting Internet operation, and computer networks of enterprises and governments.

According to people familiar with the matter, the agreement reached with the trump administration requires TSMC to establish a chip factory in Arizona by 2023. It is unclear what support the project will receive from the U.S. federal government or Arizona.

The cost of building a cutting-edge chip factory is very high. TSMC spent NT $500 billion (about US $17 billion) to build an advanced chip factory in Tainan and will mass produce parts for the new iPhone this year. The company plans to invest another $16 billion in capital expenditure this year.

If the federal government provides funds for TSMC’s U.S. factories, it will mark a change in policy by the Republican government. Previously, the White House rarely supported such direct industrial intervention, but preferred to rely on the “invisible hand”. However, emerging trends may force the United States to reconsider.

The US government is already providing grants or billions of dollars in loans to maintain the company’s survival in the economic recession triggered by COVID-19. The crisis also highlights how vulnerable global supply chains are to such shocks.

By manufacturing chips for many leading technology companies, TSMC has accumulated a large number of technologies needed to produce the smallest, most efficient and most powerful semiconductor equipment. Concentrating such valuable capacity in the hands of a company in Asia is very worrying to the U.S. government.

TSMC’s US rival global foundries has abandoned its advanced chip manufacturing business, while chip giant Intel mainly makes products for itself. Intel has tried to become a so-called OEM, but failed to win the favor of major customers. At present, TSMC’s only strong enemy is South Korea’s Samsung Electronics Company.

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