The United States government has invoked additional tariffs and a minimum import price system on polysilicon, a key material for semiconductors and solar power, following its move to threaten a new import ban on Chinese optical transceivers for data centers over eavesdropping and hacking concerns. As bandwidth expansion for artificial intelligence data centers and core materials for infrastructure power and semiconductors emerge as a new battleground in the US-China trade war, competition to find the real leading stocks and secure independent supply chains is intensifying globally.
According to the financial investment industry, related materials and components stocks all showed strength immediately after news broke that the US Federal Communications Commission (FCC) was reviewing a draft rule banning imports of new Chinese optical transceivers. Optical transceivers are drawing significant attention as a key component for expanding AI chip bandwidth. Consequently, companies with non-Chinese supply chains surged in the domestic stock markets of allied nations, while US firms Coherent and Lumentum emerged as direct beneficiaries.
The Indium Phosphide Supply Chain Shock
Stocks related to indium phosphide (InP), a critical material for manufacturing high-speed optical transceivers, also experienced significant volatility. In Japan, Rasa Industries, which supplies high-purity red phosphorus and indium as InP raw materials, jumped 16.07 percent on August 5, rising more than 30 percent over the week. AXT, a leading US InP wafer company, also saw its shares rise nearly 10 percent on the New York Stock Exchange. The market reaction underscores the strategic importance of these niche materials in the broader AI hardware ecosystem.
However, the reality of the global supply chain complicates the narrative of a clean decoupling. Much of the raw materials for indium phosphide and polysilicon still depend heavily on China. Market research firm TrendForce notes that China accounts for more than 80 percent of the global supply chain for key solar and semiconductor materials such as polysilicon and wafers. Even for US-listed companies like AXT, concerns remain regarding exposure to Chinese production risks, as significant portions of their processing bases are located in Beijing.
The Impact on Chinese Manufacturers
In contrast to the surging stocks of alternative suppliers, supply chain-leading companies on the Chinese and Hong Kong stock markets could not avoid the impact of the impending regulations. Zhongji Innolight, a major Chinese manufacturer of optical transceivers, plunged 7.27 percent on August 6 and fell another 3.68 percent the following day, bringing its decline over the past month to more than 18 percent . Eoptolink, listed on the Shanghai market, was also weak, posting a one-month return of negative 17.48 percent .
The US draft ban on Chinese optical transceivers represents a targeted strike at a sector where Chinese firms have established a dominant global position. According to TrendForce, Chinese companies’ share of the global optical module contract manufacturing market is projected to reach 56 percent by the end of 2026 . The FCC’s move aims to curtail this dominance, citing national security risks associated with data center infrastructure, and forces global tech companies to reconsider their procurement strategies.
Accelerating Supply Chain Diversification
The securities industry believes short-term supply chain disruption will be difficult to avoid, as these regulatory measures materialize with a time lag. An industry official noted that there are significant concerns about supply and demand disruptions because China holds an overwhelming share in both the optical module and polysilicon markets . The new US measures, including a 15 percent additional tariff and a minimum import price system of $21 per kilogram for polysilicon, are designed to significantly alter the economic calculus of sourcing from China.
As regulations take concrete shape, such as the tariff taking effect on December 4, 2026, the reshaping toward independent supply chain companies with complete non-Chinese raw material procurement and origin tracking systems will accelerate further. Companies that can demonstrate supply chains entirely free of Chinese components, such as South Korea’s OCI Holdings and Hanwha Solutions, are drawing a large influx of buying from investors betting on the permanence of the US-China technological decoupling . The battle over AI infrastructure has shifted beyond advanced logic chips to the foundational materials that power and connect data centers.
The escalating materials war reflects a fundamental shift like the US-China technology competition. In the first phase, the conflict centered on advanced logic chips and the equipment needed to manufacture them. In the second phase, the focus expanded to memory chips and high-bandwidth memory. The current phase is targeting the raw materials and passive components that underpin the entire AI hardware stack.
Each successive front has proven harder to decouple cleanly, because China’s dominance in these foundational materials is the result of decades of industrial policy investment that cannot be replicated quickly elsewhere. For policymakers in Washington and allied capitals, the challenge is not simply to ban Chinese components, but to build credible alternative supply chains before the bans take effect — a task that requires years of investment and coordination that the pace of AI development may not allow.