WASHINGTON (Reuters) - The U.S. Commerce Department said Friday it has finalized a $6.6 billion government subsidy for Taiwan Semiconductor Manufacturing Co's ( TSM ) U.S. unit for semiconductor production in Phoenix, Arizona.

The binding contract - after a preliminary agreement announced in April - is the first major award to be completed under the $52.7 billion program created in 2022.

It comes just weeks before President-elect Donald Trump, who criticized the program, takes office.

In April, TSMC agreed to expand its planned investment by $25 billion to $65 billion and to add a third Arizona fab by 2030.

The Taiwanese company will produce the world's most advanced 2 nanometer technology at its second Arizona fab expected to begin production in 2028. TSMC also agreed to use its most advanced chip manufacturing technology called "A16" in Arizona.

"When we started this there were a lot of naysayers who said maybe TSMC will do 5 or 6 nanometer in the United States," Commerce Secretary Gina Raimondo said in an interview. "Actually they are doing their most sophisticated chips in the United States."

The TSMC award also includes up to $5 billion in low-cost government loans. Under the agreement, TSMC will receive cash as it meets project milestones. Commerce expects to release at least $1 billion to TSMC by year end, a senior official told reporters.

TSMC agreed to forgo stock buybacks for five years - subject to some exceptions - and share any excess profits with the U.S. government under an "upside sharing agreement."

TSMC CEO C.C. Wei said in a statement the deal "helps us to accelerate the development of the most advanced semiconductor manufacturing technology available in the U.S."

Congress in 2022 approved the Chips and Science Act to boost domestic semiconductor output, which Raimondo called essential to getting TSMC and other chips investment. No leading edge chips are currently produced in the United States.

"It didn't happen on its own... We had to convince TSMC that they would want to expand," Raimondo said, adding officials also had to convince American companies to buy U.S. made chips. "The market does not price in national security."

Commerce has allocated $36 billion for chips projects including $6.4 billion for Samsung in Texas, $8.5 billion for Intel ( INTC ) and $6.1 billion for Micron Technology ( MU ). Commerce is working to finalize those agreements before Biden leaves office on Jan. 20.

Reuters reported on Saturday Commerce ordered TSMC to halt shipments of advanced chips to Chinese customers.

Raimondo did not confirm the department issued a directive to TSMC but said the United States needs to play offense and defense with China.

"Investing in TSMC to expand here is offense - defense is making sure that neither TSMC nor any other company sells our most sophisticated technology to China and violates our export controls," Raimondo said, adding she was not saying TSMC had committed any violations.

"We take national security seriously and we look into every potential problem, whether it's with companies we subsidize or not," she added.

(Reporting by David Shepardson; Editing by Lincoln Feast.)