The U.S. Chamber of Commerce and a coalition of American manufacturing and technology groups sent a letter to the USTR and Commerce Department on Wednesday calling China’s February 2025 decision to add indium phosphide to its export control list a critical threat to U.S. industrial competitiveness. The letter asked the administration to treat InP access as a priority in ongoing trade negotiations with Beijing. The position YourDailyAnalysis takes: the letter is arriving late relative to the severity of the problem, but the timing is not accidental – it lands the week the AI infrastructure buildout faces its most direct supply chain scrutiny yet.
InP substrates are the foundational material for high-speed optical transceivers, the components that allow AI data centers to move enormous volumes of data through fiber-optic networks rather than copper wire. As AI workloads grow, copper interconnects hit physical speed limits and photonics becomes the only viable path. Konrad Wang, a research analyst at SemiAnalysis, described InP as one of several supply chain bottlenecks collectively gating AI data centre buildouts.
China controls 70% of global indium production according to U.S. Geological Survey 2024 data. The country added InP to its export control list on February 4, 2025, requiring individual export permits for every order shipped outside China. AXT, the world’s second-largest InP substrate producer, has reported permit delays that disrupted Q4 2025 revenue. Its backlog reached $60 million by end-2025. The supply arithmetic YourDailyAnalysis maps: demand for InP wafers could grow 2x in 2026 and another 2x in 2027, while the supply chain depends on Chinese government discretion at every export step.
Paul Triolo, a partner at Albright Stonebridge Group, described Beijing’s approach: rather than blocking finished photonics products outright, it can slow or condition the export of upstream compounds and substrates that determine whether the optical-module ecosystem can scale quickly enough to meet hyperscaler demand. The lever Beijing holds is a granular, permit-by-permit control mechanism that creates uncertainty without triggering a formal trade dispute.
Nvidia announced $2 billion investments each in Coherent and Lumentum in March to secure optical component supply. Marvell Technology acquired Celestial AI for its silicon photonics work. AXT completed a $632.5 million capital raise to double InP capacity in both 2026 and 2027. Where YourDailyAnalysis settles: the AI buildout timeline hyperscalers project in their capex guidance has an embedded Chinese materials dependency that is currently visible to supply chain specialists and invisible to most equity investors.
The Chamber of Commerce letter asks for government-to-government negotiation to restore normal export permit flows, preferably as part of the Section 301 and trade normalization talks currently underway. The irony is that the Trump administration is simultaneously conducting the most aggressive tariff pressure campaign against China in decades while relying on Chinese goodwill for the materials that make its AI infrastructure ambitions physically possible. Those two postures are in direct tension.
Goldman Sachs projects 800G optical module shipments exceeding 34 million units in 2026 and 1.6T modules surpassing 25 million units. Every one of those modules depends on InP substrates. The implication YourDailyAnalysis draws: Chinese AI companies can access the material; Western AI infrastructure companies cannot, not reliably, not without permits that arrive on Beijing’s schedule.
The business group letter will likely reach the USTR’s desk alongside the Section 301 overcapacity probe, the Turnberry cap structure, and the H200 export controls. Adding another channel request to that stack does not guarantee action, but it puts the materials chokepoint formally on the negotiating agenda.
The watch point over the next six weeks is whether InP appears as a line item in any Section 301 negotiation framework or bilateral trade agreement. If it does, pressure eases. If it does not, the photonic component bottleneck grows tighter through H2 2026. Your Daily Analysis leaves open the harder question: whether the administration treats InP as a trade chip to extract other concessions from Beijing, in which case resolution is further away than the business coalition’s letter assumes.
