Microsoft and other technology companies are urging the Trump administration to reconsider a proposed ban on new Chinese optical-transceiver imports, warning that supply shortages could delay U.S. data-center construction and hamper the race to build AI infrastructure.

The FCC is drafting the measure over concerns that Beijing could use the devices to steal data, install malware or disrupt U.S. facilities; the transceivers carry data over fiber-optic cables, and large data centers can require millions of them.

The security case is contested: one analyst described transceivers as relatively simple signal-conversion devices, while another said firmware and management interfaces in modern models make malware concerns worth considering.

The supply stakes are significant: Chinese companies account for about two-thirds of the global optical-transceiver market, and suppliers including Eoptolink and Zhongji Innolight serve major U.S. cloud companies.

U.S. suppliers Coherent and Lumentum lack the production capacity to replace Chinese suppliers at scale, according to the Foundation for American Innovation, while alternative manufacturers would need time to expand capacity and qualify products.

Microsoft reportedly raised supply concerns in September meetings with White House and National Security Council officials; Cleanview says the company has 35 U.S. data centers under construction and 134 more planned.

One possible compromise would allow Chinese-made transceivers if U.S. companies provide at least 65% of their bill-of-materials value, potentially supporting U.S. suppliers of digital signal processors and laser components while leaving some assembly in China.

The FCC’s decision could shape construction costs, AI deployment schedules and infrastructure returns: a broad ban could leave expensive AI processors underused, while a narrower restriction could address security concerns without derailing expansion plans.

The impact would likely unfold over several years, as production of the targeted models is expected to ramp up in 2028 and widespread use is anticipated in 2029.

China’s embassy in Washington said it opposes what it called the U.S. overextension of national-security arguments to suppress Chinese companies; Zhongji Innolight is on a Pentagon list of Chinese military-backed companies.

The dispute marks a contrast with Microsoft’s February 2025 push to adjust Biden-era AI chip export rules to prevent the United States from aiding China’s AI development: the company previously sought tighter export controls to China, but now opposes limits on imports from China.

The debate adds another pressure point for data-center operators already facing constraints around electricity grids, cooling water and local opposition to higher utility prices.