Biden’s $270 billion semiconductor bill to battle China isn’t that big a deal, Goldman says. Unless there’s some kind of huge ‘international conflict’

Last month, President Joe Biden signed into law the much-awaited CHIPS Act, a package that will funnel more than $70 billion into the American semiconductor industry and set aside approximately $200 billion for further scientific and technological research.

The bipartisan bill was seen as a huge legislative win for Biden, as he embarks on a mission to bring more manufacturing back stateside and to American companies looking to compete with foreign competitors, namely China.

But despite the plaudits, those expecting the bill to resolve the ongoing global semiconductor chip shortage are likely to be left disappointed, according to a note published last week by Goldman Sachs analysts.

Biden’s big win is likely not big enough to rid the global economy of its semiconductor supply-chain woes of the past few years, Goldman’s research team, led by the investment bank’s chief economist Jan Hatzius, found. But that could change quickly if, say, a major international conflict erupts between chipmaking countries given the “current concentration of production and expertise in Taiwan and Korea.”

CHIPS and chip shortages

The CHIPS Act is setting aside $77 billion in grants, subsidies, loans, and tax credits for the U.S. semiconductor industry over the next five to 10 years. Biden has said that the bill will create more high-tech jobs in the U.S. and help American companies catch up with direct competitors, mainly those based in China.

But for all its lofty goals, the CHIPS Act is unlikely to put a huge dent in the global chip shortage that has been plaguing the global economy since the early days of the pandemic, and has led to longer lead times and higher prices for everything from laptops to cars. “These funds look unlikely to meaningfully change global semiconductor investment or supply,” the Goldman analysts wrote.

Goldman’s research team estimates that the approved funding will only make up around 3% of the global semiconductor industry’s total expenditure next year.

While the new funding is “substantial” in the context of the U.S. semiconductor industry, they said it is much more modest when put up against the global market.

Combined with the fact that new chip manufacturing factories usually take around two years to build, Goldman analysts found that an immediate effect on the chip shortage is unlikely, and even once U.S. production hits full steam, the contribution to the global semiconductor industry will remain relatively small.

But while the CHIPS Act may not mean that the chip shortage will go away anytime soon, Goldman analysts recommended a different lens through which to observe the new law, one that focuses more on how Biden’s big win can boost the country’s geopolitical standing.

A geopolitical advantage

East Asia—including manufacturing hotspots in Taiwan, South Korea, and China—currently accounts for 75% of global semiconductor manufacturing.

This geographic localization has directed the bulk of semiconductor investing away from the U.S., but the new bill, Goldman analysts argue, presents a possibility to change that.

While the CHIPS Act’s effect on increasing general investments in the U.S. is likely to be marginal, the impact it will have on boosting investments designated for the U.S. domestic chip industry are likely to be much higher.

“While the potential increase in overall business investment would be very small (<0.05% of GDP per year), the increase in domestic semiconductor investment could be more meaningful,” the Goldman analysts wrote.

But the biggest draw of the bill might be the opportunity for the U.S. chip supply chain to reduce its dependence on circumstances surrounding the relatively small number of countries who currently produce the most semiconductors.

“Overall, the new law should be viewed more in the context of U.S. geopolitical strategy—in coordination with Europe—hedging against future crises than as a macroeconomic policy designed to ease supply chains anytime soon,” the analysts wrote.

“As such, this law is likely to have meaningful economic effects only in the event of a major disruption to supply chains, such as an international conflict.”

Fears that an international conflict might cut into the global chip supply took on a renewed importance last month, after Taiwan-China tensions hit a new high in the wake of U.S. House Speaker Nancy Pelosi’s high-profile diplomatic visit to the island that China considers a breakaway state.

Just as Pelosi landed in Taiwan at the beginning of August, global chip stocks plunged, while Chinese chip stocks soared.

By boosting domestic manufacturing, the U.S. might be placing itself in a better position to weather a shortage storm, the Goldman analysts argue, should a calamity like a global conflict or another pandemic bad enough to induce lockdowns come to pass.

This story was originally featured on Fortune.com