Lutnick Discloses Inside Scoop: US Government Pressures TSMC to Trade Investment for Subsidies

TradingKey - In a recent interview, US Commerce Secretary Howard Lutnick criticized the Biden administration’s subsidy policy as "giving away money for nothing." He highlighted that the Trump administration demanded a "fair deal" from companies as a condition for receiving subsidies. This approach led TSMC to increase its investment in the US to $165 billion.

Lutnick noted that TSMC, the chip manufacturing giant with a market valuation nearing $1 trillion, received a $6.5 billion subsidy from the Biden administration to build a $65 billion chip plant in Arizona, essentially covering 10% of the costs.

Lutnick argued that the subsidy terms were unreasonable, equating the funds to corporate giveaways. He threatened TSMC’s CEO with withdrawing the subsidy unless a better deal was proposed. Lutnick’s stance is that the US government should secure better terms to benefit American taxpayers.

Furthermore, companies like Micron and Texas Instruments have also increased their investments in the US.

Intel reached a "fair deal" differently by agreeing with the US government to exchange 10% equity for $11 billion in subsidies. Lutnick stated that Intel’s model could set a precedent for future subsidy negotiations.

In fact, Lutnick hinted publicly on Tuesday that defense giants like Lockheed Martin could be the next target after Intel. He noted that 97% of Lockheed Martin’s revenue comes from the US government, making it "semi-nationalized." Therefore, the Department of Defense aims to use equity investment to allow taxpayers to share in the long-term returns of defense companies.

Besides pressuring companies to ramp up US investments, Lutnick is also looking to South Korea, Japan, and other allies for funding to invest in US tech, manufacturing, and infrastructure sectors.

He stated that while the US will not establish a sovereign fund, it plans to create a national and economic security fund. This fund stems from commitments obtained by the Trump administration through tariff negotiations, wherein countries like Japan and South Korea invest in US infrastructure in exchange for lower tariff policies.

The market reacted, with TSMC (TSM) closing up 1.26% on Tuesday. Analysts believe the talks indicate TSMC's strategic position in the US will continue to rise, albeit under greater investment pressure.