Microsoft and other companies and industry groups are urging the Trump administration to drop a proposed ban on new Chinese-made optical transceivers, warning that supply disruptions could delay U.S. data-center construction and undermine the country’s AI ambitions.

These devices convert electrical signals to light and back across fiber-optic connections, and large data centers can require millions of them.

The FCC is considering restrictions on models capable of handling up to 3.2 terabits per second, although those products are not expected to reach production at scale until 2028 and widespread use is anticipated in 2029.

The stakes are high because Chinese companies supply about two-thirds of the global optical-transceiver market, while U.S. suppliers Coherent and Lumentum lack the capacity to replace them at scale.

Because AI data-center supply chains rely on China’s manufacturing, packaging and testing capabilities, broad restrictions could raise costs and extend delivery times as alternative suppliers build capacity and qualify products.

One possible exemption would allow Chinese-made transceivers if U.S. companies supply at least 65% of their bill-of-materials value, potentially supporting U.S. component makers while retaining some assembly in China.

The FCC is developing the measure over concerns that Beijing could use the devices to steal information, install malware or disrupt U.S. facilities, though views differ on how credible the security risk is.

One analyst characterized transceivers as relatively simple signal-conversion devices, while another said firmware and management interfaces in modern models make malware concerns worth considering.

A broad ban could leave costly AI processors underused while operators replace networking equipment, increasing costs and slowing AI infrastructure growth; a narrower restriction could preserve expansion plans while addressing security concerns.

The proposal adds uncertainty for Microsoft as it invests in data centers to meet cloud and AI demand; the company has not commented on the lobbying effort.

The dispute highlights a policy tension: Washington wants to constrain China’s technological development while accelerating U.S. technology that depends on Chinese components and access to the Chinese market.

The controversy adds to U.S.-China technology tensions ahead of the expected meeting between Donald Trump and Xi Jinping at the APEC leaders’ summit in Shenzhen on November 18–19.