China’s Indium Phosphide Export Controls Threaten Global AI Infrastructure Rollout

Shortly after the Nvidia-backed semiconductor manufacturer Coherent disclosed a critical deficit of indium phosphide during its early May financial updates, Chief Executive Officer Jim Anderson traveled to China as part of an American trade delegation accompanying President Donald Trump. According to individuals familiar with the situation, the executive's trip was motivated by escalating concerns regarding protracted delays in securing Chinese export permits for this strategic substance. Indium phosphide serves as an indispensable element in the fabrication of the high-speed optical semiconductors that power artificial intelligence data repositories.

The regulatory bottlenecks were similarly elevated to bilateral diplomatic channels. Trade representatives from both nations deliberated on the matter during preparatory negotiations in Seoul prior to the mid-May diplomatic summit between President Trump and Chinese President Xi Jinping. The urgent diplomatic interventions underline the degree to which Beijing's export management of this specific compound has evolved into a potent geopolitical lever, which sector analysts warn could stall the international implementation of artificial intelligence computational infrastructure.

The escalating demand for indium phosphide is propelled by a paradigm shift in data center architecture. As artificial intelligence computational burdens expand exponentially, developers are increasingly transitioning from traditional copper-based electrical wiring to advanced photonics systems that utilize light transmission through fiber optics. Within this new technological framework, indium phosphide is a foundational component with no viable substitute. Recognizing this strategic importance, Nvidia channeled two billion dollars into both Coherent and Lumentum, while custom semiconductor developer Marvell Technology acquired the startup Celestial AI to absorb its specialized photonics capabilities.

However, the international race to engineer high-velocity, energy-efficient artificial intelligence hardware has been severely impeded by the trade barriers Beijing enacted on indium phosphide in early 2025. This targeted regulatory maneuver demonstrates a sophisticated evolution in China's trade policy. Rather than imposing sweeping embargoes on finished optical commodities, Chinese authorities have adopted a highly precise approach centered on raw material chokepoints. By delaying the export of upstream compounds and foundational metallic substrates, Beijing can effectively regulate the expansion rate of the global optical module network, thereby dictating how rapidly major technology corporations can scale their operations.

This supply chain vulnerability is magnified by China's overwhelming dominance in the raw materials market. Data from the United States Geological Survey indicates that China controls approximately seventy percent of the aggregate international production of indium. By manipulating access to this critical resource, Beijing has effectively replicated the restrictive rare earth export policies that previously disrupted global aviation, automotive, and semiconductor supply networks, further escalating the technological rivalry between the United States and China.