The FAR Council Just Wrote a New Supply-Chain Tax - It Starts as Paperwork
The Opportunity
The FAR Council has issued a proposed procurement rule targeting products and services that include certain "covered" Chinese semiconductor suppliers, with certification and reporting obligations. The directional call is SHORT because the first-order effect of these regimes is friction: due-diligence cost, bill-of-materials opacity risk, and procurement exclusion uncertainty for contractors and supply chains that cannot prove clean provenance. The proxies (SMH/KWEB) capture semiconductor ecosystem sensitivity and China-linked spillover risk.
The Timing
Freshness is 85 and the proposal date is 17 February 2026, but the effective date referenced upstream is far out (2027+), which changes the trading logic: this is about expectation-setting and compliance preparation, not immediate earnings hits. In a Bearish 62 environment with crosswind risk 72, policy narratives can whipsaw on headline geopolitics, so the key timing variable is the comment process and whether exemptions/waivers soften the practical bite. What would confirm the bearish thesis is a final rule that keeps the reporting obligations and broad scope; what would blunt it is a materially watered-down scope or pragmatic waivers.
The Evidence
The upstream due-diligence anchor is a Federal Register republisher: regulations.justia.com . The hydrated evidence includes a practitioner write-up summarising the proposal and compliance posture: jdsupra.com . The edge is that equity investors often see "export controls" headlines, but miss the operational reality: procurement compliance is a slow, expensive tax that shows up first in process, then in supplier choice.