Microsoft Lobbies US Against Ban on Chinese AI Hardware

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Microsoft and Industry Push Back on Proposed Import Ban

Microsoft has been lobbying the Trump administration to stop plans to prohibit U.S. imports of a critical Chinese-made component used in artificial intelligence data centers, three people with knowledge of the situation said.

In August, Reuters reported that the administration is seeking to block imports of new Chinese models of optical transceivers. These devices enable data to travel via fiber-optic cables at the speed of light within data centers. U.S. officials are concerned the equipment could be leveraged by Beijing to exfiltrate data, implant malicious software, or disrupt operations at U.S.-based facilities.

Microsoft has 35 data centers under construction across the United States and another 134 planned, based on figures from Cleanview, a market intelligence firm that monitors data center projects. The company is part of a broader coalition of firms and trade associations arguing to the administration that an import ban could inflict lasting harm on the U.S. lead over China in AI by further slowing the deployment of new data centers, the sources said.

According to two of the people, Microsoft was among a small group of companies that met with officials from the White House Office of Science and Technology Policy and the National Security Council in September to highlight potential supply chain disruptions stemming from any such prohibition.

Concerns Over AI Infrastructure Deployment

John Miller, general counsel of the Information Technology Industry Council (ITI), a technology lobbying organization that has publicly opposed moving ahead with the ban, warned about the impact on cloud infrastructure buildouts.

“It really threatens to arguably grind (the data center rollout) to a halt,” Miller said.

He noted that numerous cloud providers have already acquired the AI chips needed for expansion. “Those chips, without optical transceivers literally could just sit there waiting around un-utilized until you actually have the transceivers to essentially connect them together,” he added.

Some data centers require millions of optical transceivers to interlink servers, routers, and switches.

The Federal Communications Commission, which regulates the U.S. telecommunications sector, is currently working on the proposed ban.

The previously unreported efforts by Microsoft and other companies underscore how the FCC’s internal deliberations have alarmed an industry racing to meet surging demand for cloud and AI capabilities, even as consumer unease grows over energy consumption and water usage tied to data center expansion.

Microsoft declined to comment. The White House, the FCC, and the Chinese embassy in Washington did not immediately respond to requests for comment.

Market Structure and Supply Constraints

China accounts for two-thirds of the global optical transceiver market, according to Counterpoint Research. Chinese manufacturers such as Eoptolink and Zhongji Innolight – the latter having been placed on the Pentagon’s list of Chinese military-backed companies – dominate worldwide supply and count major U.S. hyperscale operators among their customers.

U.S.-based Coherent and Lumentum offer competing technology but do not have sufficient scale to fully substitute for Chinese vendors, a report from the Foundation for American Innovation stated.

Industry Lobbying and FCC Deliberations

On August 13, ITI sent a letter to the FCC urging the regulator to “refrain from adding optical transceivers” to a trade blacklist. The letter stressed the “potential effects that supply disruptions could have on data center deployment and US AI leadership.”

In an October client note, Morgan Stanley said the Trump administration was evaluating restrictions on Chinese optical transceivers capable of handling 3.2 terabits of data per second. Production of these high-capacity products is not expected to scale up until 2028, with widespread deployment projected for 2029, the note said.

According to the bank, such a technical threshold could help avoid inflaming tensions with U.S. corporations and Beijing, while allowing U.S. optical component makers additional time to boost manufacturing.

The FCC has not publicly discussed the optical transceiver proposal. However, two of the sources said the 3.2-terabit-per-second cutoff is among the options being considered.

Legislative Efforts Target Federal Systems

Some lawmakers may be unwilling to wait for regulators to act. In September, a bipartisan group of U.S. legislators introduced a bill that would prohibit the federal government from installing Chinese-made optical transceivers in sensitive government systems.

Key Players and Technical Scope