Microsoft urges President Trump to shelf optical transreceiver China import ban

The Trump administration is being lobbied by Microsoft to stop a planned ban on optical transceivers from China, Reuters has reported, citing three people familiar with the matter.

Optical transceivers are fiber optic parts that help to connect AI data centers. Microsoft believes the ban could delay data center projects across the US cloud industry.

The part that connects the chips

Optical transceivers turn electrical signals into light and send it through fiber-optic cables. At the other end, they turn the light back into electrical signals. These devices connect servers, routers and switches in data centers. Large AI data centers can need millions of them.

US officials are concerned that China could use these devices to steal data, install harmful software or disrupt services at American facilities. The Federal Communications Commission (FCC) is working on the proposed ban. The Trump administration has also reportedly been considering one of such bans since at least August.

Microsoft declined to comment on the matter, according to Reuters. The FCC and the White House have also yet to make any public statement.

Microsoft believes a ban would backfire

Microsoft says the ban could delay its data center projects by limiting access to key parts. The company has 35 data centers under construction in the US and plans to build another 134, according to market research firm Cleanview, cited by Reuters. Without enough optical transceivers, work on these projects could slow or even totally come to a stop.

John Miller, general counsel at the Information Technology Industry Council (ITI), warned that the ban could “really threaten” to bring data center construction to a halt, Reuters reported. He said cloud companies have already bought the AI chips needed for their projects. However, the chips could just sit waiting unused without transceivers to connect them.

ITI made the same point in a letter to the FCC dated August 13. The group urged the agency not to add transceivers to the trade blacklist. It also warned that a ban could delay data center projects and hurt US efforts to lead the AI industry.

Microsoft was also among a small group of companies that met White House officials in September to discuss supply chain risks. The meetings included officials from the Office of Science and Technology Policy and the National Security Council, two people told Reuters.

The 3.2 terabit line and China’s grip

The FCC is considering a limit of 3.2 terabits per second, two sources told Reuters. This would mean the ban applies to newer, higher-capacity modules but not equipment already in use.

A Morgan Stanley note from October said production of 3.2-terabit transceivers is not expected to pick up until 2028. Wider use is also expected to increase in 2029. This window could give US manufacturers more time to increase production before the ban takes effect.

The manufacturers will definitely need that time. China accounts for about two-thirds of the global optical transceiver market, according to Counterpoint Research. Chinese suppliers Eoptolink and Zhongji Innolight control a large portion of the market. Zhongji Innolight is also on the Pentagon’s list of companies linked to the Chinese military.

US companies Coherent and Lumentum make similar products to these Chinese companies. However, they cannot produce them at the same scale as their Chinese rivals, according to a Foundation for American Innovation report cited by Reuters.

Congress is not waiting

Lawmakers have already moved to action. In September, a bipartisan group introduced a bill to ban Chinese-made optical transceivers from classified government systems. The bill has a more limited scope than the FCC’s proposed ban, which would also cover commercial data centers being built by major cloud companies.

The debate comes as AI data centers face criticism for using more energy and water. For cloud companies, a shortage of transceivers could leave purchased chips sitting unused and put billions of dollars in planned spending at risk.