In Japan, TSMC Just Sent Invoices for Chip Aid. In America, It Took a Week in Taiwan to Argue the Contract.
U.S. officials added taxpayer protections one by one, and the pileup turned a subsidy into a long legal negotiation.
The Lawfare Podcast · Lawfare Daily: Mike Schmidt Talks CHIPS and U.S. Industrial PolicyFor a full week, Mike Schmidt sat in a conference room in Taiwan going through contract language with TSMC, the Taiwanese company that makes the world's most advanced chips. Schmidt, who ran the Commerce Department office charged with turning the 2022 CHIPS Act into factory projects in the United States, had flown there to finalize America's subsidy deal with the company.
The scene captures why Washington found it so hard to give away money for chips. Schmidt thought his team was at the 10-yard line after announcing preliminary deals, known as term sheets, to great fanfare. Getting from those announcements to final, legally binding awards turned out to be among the hardest parts of the job.
The fight was over the fine print that defines how Washington and the company would work together. That meant when Washington could stop payments or claw back funds, meaning take money back, how each side could end the deal, how disputes would be resolved, and what promises and restrictions, known in deal language as representations, warranties, and covenants, each side was making. It also meant indemnities, or who pays if the government gets sued over something that happens at the factory site.
Those open-ended liabilities worry corporate boards, and Schmidt's lawyers had a second negotiation running at the same time. Justice Department guidance limits how the government can use indemnities, so Commerce lawyers were bargaining with Justice while Schmidt was bargaining with the companies.
Schmidt said the burden came from the pileup of many rules that each seemed sensible on its own. Sitting across the table from industry, he said, made the cost of all that caution feel acute. Each protection was there in part to protect taxpayers, but together they added friction.
The contrast came when Schmidt asked his TSMC counterpart how the American contract compared with Japan's. The executive looked puzzled. What do you mean, he asked. Schmidt pressed him to describe the Japanese deal straight. Oh, the man said, "we don't have a contract with Japan." The company had an agreement to build, and then it sent in invoices and received the incentive payments.
Schmidt added that Japan's lighter touch came with its own challenges, including extensive auditing after the money was paid. But the exchange stayed with him as a measure of the American approach, a week in Taiwan arguing over what happens if something goes wrong, versus an invoice and a check.
Questions people ask
Why does the U.S. insist on such detailed contracts for subsidies?
Federal awards generally must spell out performance milestones, audit rights, and remedies so officials can account for public money and enforce conditions. Those terms also let agencies stop or recover funds if a company misses targets or misuses money. The tradeoff is slower negotiations, especially with large companies that have their own lawyers and boards to satisfy.
How does Japan's invoice system work, and is it really simpler?
Japan's chip aid has typically reimbursed a share of approved project costs after the company spends the money and submits proof. That can feel faster upfront because there is less bargaining over future liabilities. The control comes later, through cost reviews and audits that can disallow expenses and reduce payments.
What is an indemnity, and why would a chipmaker care?
An indemnity is a promise that one party will cover the other's losses or legal costs if a specified bad outcome happens. A broad promise to cover the government could expose a company to large and unpredictable costs tied to a factory site. Boards therefore push to narrow the triggers, cap the amount, and clarify procedures before they sign.