WASHINGTON, Nov 15 (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.)