Taiwan Semiconductor Manufacturing (TSMC) has agreed to increase its investment in its Arizona site by 60%, from $41bn to $65bn, and to begin making cutting-edge 2nm chips in them. In return, the federal government has agreed to grant the company $6.6bn.

It’s the biggest example of foreign direct investment in a greenfield site in US history.

The company announced today that it has signed a non-binding “memorandum of terms” with the US Commerce Department.

Under the agreement the US will offer the grant as part of the CHIPS and Science Act, and TSMC will build a third fab at TSMC Arizona “leveraging the most advanced semiconductor process technology in the US”.

TSMC will also receive $5bn in loans and will be able to claim an investment tax credit of up to 25% of capital expenditure.

This is not the largest incentive offered by the US government to a chip maker. Last month, Intel gained $8.5bn in grants and $11bn in loans to expand its US operations.

CC Wei, the chief executive of TSMC, commented: “We are honoured to support our customers who have been pioneers in mobile, AI and high-performance computing, whether in chip design, hardware systems or software, algorithms and large language models.

“As their foundry partner, we will help them unleash their innovations by increasing capacity for leading-edge technology through TSMC Arizona.”

For the US side, Commerce Secretary Gina Raimondo said the deal would mean that, for the first time, the US would be making the most advanced semiconductor chips on the planet here in the United States of America. She added that 14 other companies were planning to construct or expand plants in the US to support the TSMC fabrication plants.

TSMC is the world’s biggest contract chipmaker, serving leading global chip developers including Apple, Nvidia, Qualcomm and Amazon. The $6.6 billion direct funding to TSMC would be the U.S. government’s largest financial grant to a foreign chipmaker to date.

The company has already begun work on two fabs at its Arizona base. The first will make 4nm chips and is scheduled to begin production in 2025. The second plant, originally intended to produce 3nm chips, will now also produce 2nm ones. This plant is scheduled to begin production by 2028.

The third TSMC plant will also produce 2nm chips, as well as even more advanced semiconductors, according to the company.