China is strangling critical materials that the US needs for its technology industry. It’s a two speed war
In early May, Trump went to China on an official trip and took an entourage of CEOs on Air Force One. They were all from the technology (Cristiano Amon, Tim Cook, Elon Musk or Jensen Huang, for example), but also others energy, the space industry or semiconductors. One of them was Jim Anderson of Coherent, who was very interested in something very specific: why China is taking more than necessary in issue export licenses of indium phosphide. Anderson is blown away by indium phosphide for a very specific reason: It’s an essential material for high-speed optical chips. And, although it may seem very specific, it turns out that it is the key piece that the data centers new generation of the United States. And China, as with other strategic materials and metals, is in control. Optical chips. Data centers house miles and miles of visible cables that connect servers to the network and power, but they are not the only ones. Within each device, the chips are linked by cable and it is a functional technology, but with a limit that is beginning to be reached. If you want to improve latency and bandwidth (and, therefore, the performance of artificial intelligence platforms), you must rethink the internal connection to communicate the chips. That’s where optics come into play. By connecting chips by laser, the performance of the equipment is multiplied and Nvidia is so convinced of this that, a few months ago, invested 4 billion dollars in two companies: Lumentum and Coherent. They estimate that, with copper that is at its limit, connecting clusters of thousands of processors by laser is the solution to the physical problem that they are beginning to encounter. They are components with a very high degree of specialization and a series of materials from the rare earth which, as we have said on numerous occasions, are under the control of China. Indium phosphide is not a rare earth derivative, but it is a strategic material. Strangling the market . And therein lies the problem. The United States wants to promote its technological independence (because they have Big Tech, but practically everything is manufactured outside the United States) and, to achieve this, they need a series of materials that are not in their possession. China has that dominancebut with each restriction and veto that is applied to them from the US, they respond with the same currency, but vetoing what American technology companies need so much: rare earth metals. That is why they are classified as minerals, metals and strategic components, and indium phosphide is among them. China produces approximately 70% of the world’s indium and started to apply restrictions to the supply chain in February 2025. This has caused not only prices to skyrocket by 250%, but also American technology companies to pressure to reverse the situation. The main complaint is that, instead of directly blocking the finished products, it slows down the entire process because They are capable of conditioning the export of the materials used to create those products. Therefore, the optical module ecosystem cannot scale as quickly as hyperscalers need. Domino. Taking this situation into account, what is happening with these security systems advanced photonics It is exactly the same as with NAND chips: all the fish are sold for the next few years. In this sense, as consumers we absolutely don’t care because it is something that only affects AI companies, but it is estimated that Lumentum will have everything sold out in 2026, 2027 and… 2028, despite having quadrupled its production. It not only affects American companies, since the Taiwanese VPEC and LandMark Optoelectronics are also suffering interruptions in the supply of the material. And it doesn’t matter if Lumentum or Coherent are multiplying their capacity by opening new plants because the raw materials continue to leave China and, if those export controls are in place, It is an insurmountable funnel. The other side of the coin. On the other hand we have the Chinese industry. In recent years, its technologies have taken a giant leap, expanding its capacity and beginning to make waves in the international conversation with both user level components (RAM memory and computers) and in the high technological spheres (photonics and semiconductors). Because China has detailed the plan to become the world’s leading technological power by 2030 and it is clear that they have both a very defined roadmap and, above all, the materials necessary to achieve that goal and which companies are the ones that will define that future. Huawei or SMIC are two proper namesbut there are others like Yuanjie that have skyrocketed in the stock market. The reason? They are the ones who are creating photonics components for data centers. In Xataka | Huawei no longer competes: it is building its own parallel reality
