The Chip War Is Now a Two-Front Battle, and the US Is Losing the Material That Wins It
What happened
The US introduced the MATCH Act in April 2026, seeking to cut China off from Dutch-made DUV lithography tools. the last major chipmaking equipment China can still access. Days later, China imposed export controls on indium phosphide (InP), a critical semiconductor material used in AI data center components that China dominates globally. The moves mark a new escalation in the US-China technology war.
The US is tightening the noose on China's ability to manufacture advanced chips. but China just demonstrated it controls the material supply chain that makes the datacenters those chips run in. The MATCH Act is a meaningful escalation. China's InP controls are a reminder that in a full-spectrum materials war, the side that controls inputs beats the side that controls equipment.
The Hidden Bet
Cutting China off from DUV lithography tools will meaningfully slow its advanced semiconductor production
China's SMEE is the domestic alternative to ASML for DUV tools. SMEE is 3-5 years behind, but the MATCH Act's passage timeline. if it passes at all. gives Beijing a multi-year runway to close the gap. Chinese state investment in domestic tooling has accelerated every time a new US restriction has been announced. The restriction may be accelerating the capability it's trying to stop.
The Netherlands will fully align with US MATCH Act restrictions on ASML
Dutch cooperation with prior US chip restrictions (EUV in 2023, some DUV in 2024) came at significant economic and diplomatic cost. ASML's China revenue is over 20% of its total. The MATCH Act requires the Netherlands to enforce restrictions on a private Dutch company. that requires Dutch government agreement, which is not guaranteed. The US has imposed restrictions before without full allied buy-in; the result was Chinese companies finding workarounds through third countries.
InP substrate shortages are a temporary disruption that industry can route around
China controls roughly 60% of global indium production, which is the feedstock for InP. Unlike chips. where fabs can theoretically be built anywhere with enough capital. indium is a geological reality. There are no major non-Chinese indium mines being developed. The US has no domestic InP wafer production capability at scale. The Lumentum expansion in North Carolina is years away from meaningful volume.
The Real Disagreement
The real fork is between two strategies for winning the semiconductor competition. One says: cut China off from the equipment it needs to make advanced chips, accept short-term allied friction and market disruption, and eventually force Beijing's chipmakers into irrelevance at the frontier. The other says: move faster on domestic production, secure material supply chains, and avoid a confrontational posture that accelerates Chinese self-sufficiency. The MATCH Act is a pure version of strategy one. China's InP export controls are an explicit demonstration of strategy two's vulnerability. if you depend on Chinese materials for your AI infrastructure, equipment restrictions are only half the equation. Lean toward strategy two: the US is winning a battle while losing the war of material supply chain control. What you'd give up is the deterrence effect. the signal that the US will cut off Chinese chipmakers no matter the cost.
What No One Is Saying
ASML is a Dutch company, and the Netherlands is a NATO ally facing its own economic pressures. Every time the US imposes new chip export restrictions, it reduces ASML's China revenue, which reduces ASML's R&D spending, which slows the development of next-generation EUV tools that Western chipmakers need to stay ahead. The MATCH Act may simultaneously cut China off from DUV tools while slowing the frontier that China is trying to catch up to. It is not obvious that this dynamic favors the US.
Who Pays
US hyperscalers and AI infrastructure operators. AWS, Microsoft Azure, Google Cloud
Supply tightness is already visible; meaningful price increases within 6-12 months if restrictions deepen
InP substrates are the critical material for the optical transceivers that connect GPUs in AI training clusters. A sustained Chinese InP export restriction raises per-unit costs for optical interconnects and potentially limits the scale of new datacenter builds. The constraint is not GPUs. it's the fiber connecting them.
ASML shareholders and the Dutch economy
ASML's 2026 earnings guidance will likely be revised downward if the MATCH Act advances to a Senate vote
Each new US restriction reduces ASML's addressable market in China. The MATCH Act targets DUV servicing as well as sales. preventing ASML engineers from maintaining equipment already installed in China. That creates customer relations and legal complications beyond just lost revenue.
Chinese semiconductor firms (SMIC, Yangtze Memory, CXMT)
12-24 months after MATCH Act passage, assuming Netherlands enforcement
Loss of DUV tool servicing is more immediately damaging than loss of new tool purchases. existing fabs require ongoing maintenance to operate at yield. Restricting ASML engineers from servicing installed tools could degrade yield rates at Chinese fabs within months, not years.
Scenarios
Full Allied Alignment
The Netherlands and Japan both enforce MATCH Act-equivalent restrictions on DUV exports and servicing. Chinese fabs degrade in yield over 18-24 months as maintenance becomes unavailable. SMEE fills the gap partly but not completely. China's chip production capacity plateaus.
Signal Dutch government formally endorses MATCH Act-equivalent export controls and announces ASML compliance review within 90 days of US passage
InP Counter-Escalation
China extends InP restrictions to a broader set of critical minerals used in AI infrastructure (germanium, gallium, rare earth magnets for datacenter cooling). Each new US equipment restriction triggers a corresponding materials restriction. The chip war goes from equipment-focused to full supply-chain war.
Signal China's Ministry of Commerce announces additional export licensing requirements for germanium or gallium within 60 days of MATCH Act advancing in Congress
MATCH Act Stalls
Allied resistance and ASML lobbying delay MATCH Act implementation. China uses the window to stockpile DUV tools and complete its SMEE domestication push. By 2028, the restrictions have negligible effect on Chinese production capacity. the window to impose meaningful costs has passed.
Signal The bill does not advance out of Senate committee before the fall 2026 recess; administration signals flexibility on servicing restrictions
What Would Change This
If the US announces a strategic indium reserve program. similar to the Strategic Petroleum Reserve. and fast-tracks domestic InP wafer production subsidies, the bottom line shifts: the administration is treating this as a full materials war, not just an equipment fight. Absence of that move confirms the US is still thinking about this primarily as a chipmaking equipment problem.
Prediction Markets
Prices as of 2026-04-09 — the analysis was written against these odds