Microsoft has been pressing the Trump administration to halt plans to bar imports of a small but critical Chinese-made component used to wire together America's AI data centers, according to three people familiar with the matter. The component in question, optical transceivers, converts electrical signals into light so data can travel across the fiber-optic cables that link servers, routers and switches inside massive computing facilities. Some data centers require millions of these devices to function.
The pressure campaign comes as the Federal Communications Commission works on a potential restriction targeting new models of Chinese optical transceivers, according to Reuters, reporting that the Trump administration first signaled it wanted to ban the imports back in August. Microsoft and industry groups argue, per sources cited in that reporting, that a ban could damage the United States' edge over China in the AI race by slowing the rollout of data center capacity nationwide. Microsoft declined to comment, the outlet reported, and the FCC, the White House and the Chinese embassy in Washington did not immediately respond to requests for comment.
The scale of what's at stake is considerable. Microsoft alone had 35 data centers under construction in the United States and another 134 planned, according to data from Cleanview, which tracks data center development across the country. Cleanview's broader national count, as of November 9, showed 4,607 U.S. data centers in various stages: 1,420 operating, 574 under construction and 2,613 planned — a dramatic jump from the 353 data centers that were online nationwide back in 2016.
Why Washington Is Worried About a Tiny Fiber-Optic Part
U.S. officials fear that Chinese-made transceivers could give Beijing a way to steal data, install malware or disrupt data center operations inside the country, according to reporting from Tom's Hardware. Those security concerns sit alongside a separate congressional effort: bipartisan lawmakers introduced legislation in September to bar federal government use of Chinese-made optical transceivers in sensitive government systems. Senate records show the bill, S. 5548, was introduced on September 24, according to the Congressional Record, though it is not established whether the measure has advanced further.
Microsoft met with officials from the White House Office of Science and Technology Policy and the National Security Council in September to raise supply-chain concerns about the potential ban, according to two sources cited in the same Reuters report. John Miller, general counsel at the Information Technology Industry Council, said many cloud companies have already purchased the AI chips needed for their data center buildout — meaning a transceiver ban could leave that hardware stranded without the networking parts to connect it. “It really threatens to arguably grind (the data center rollout) to a halt,” Miller said. The ITI sent a letter to the FCC on August 13 urging the agency not to add optical transceivers to a trade blacklist.
China's Grip on the Transceiver Market
China controls roughly two-thirds of the global optical transceiver market, according to Counterpoint Research, which puts Chinese module makers' share at nearly two-thirds of global unit supply and about 60% of global optical datacom transceiver revenue. Two major Chinese suppliers, Eoptolink and Zhongji Innolight, sell into the global optical transceiver market, including to top American hyperscalers, per the same Reuters reporting. Zhongji Innolight, which Counterpoint estimates held about 27% of global data-center optical transceiver revenue in 2025, was previously added to a Pentagon list of Chinese military-backed companies.
American competitors Coherent and Lumentum also build optical transceiver technology, but Counterpoint says the two companies lack the cleanroom capacity, automated packaging infrastructure and yield scale needed to absorb Innolight and Eoptolink's volume within a 12-to-24-month window. A Foundation for American Innovation report reached a similar conclusion, finding that Coherent and Lumentum lack the scale to quickly replace the Chinese vendors. Counterpoint further warns that restricting Chinese transceiver imports risks delaying the commercial turn-up of next-generation 800G and 1.6T AI clusters by multiple quarters and could raise costs for hyperscalers already racing to expand capacity.
A Possible Middle Ground on Speed Thresholds
One option reportedly under consideration by the FCC, according to two sources, is a threshold that would only restrict Chinese transceivers capable of handling 3.2 terabits of data per second — a cutoff Morgan Stanley flagged in an October client note. Production of Chinese transceivers at that speed isn't expected to ramp up until 2028, with widespread installation projected for 2029, meaning such a threshold could give U.S. optical companies time to expand production without immediately antagonizing either American firms or Beijing. The FCC has not publicly addressed the optical transceiver issue, and the evidence available does not establish that any threshold or restriction has been formally adopted.
