Microsoft is lobbying the Trump administration to drop a planned ban on optical transceivers imported from China, according to a Reuters report citing three people familiar with the matter. The fiber-optic components are essential for linking AI data centers, and Microsoft believes a prohibition could delay data center projects across the US cloud industry. The dispute spans three fronts — an FCC rulemaking, White House meetings and a congressional bill — placing it at the intersection of the AI infrastructure buildout and national-security trade policy.

The components that connect the chips

Optical transceivers convert electrical signals into light and send it through fiber-optic cables, then turn the light back into electrical signals at the other end. The devices connect servers, routers and switches inside data centers, and large AI facilities can require millions of them. That dependence is why a proposed rule targeting these small modules has drawn lobbying at the highest levels of the US government.

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, and the Trump administration has reportedly been considering such a restriction since at least August.

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

Microsoft believes a ban would backfire

The company says a ban could delay its data center projects by limiting access to key parts. According to market research firm Cleanview, cited by Reuters, Microsoft has 35 data centers under construction in the US and plans to build another 134. Without enough optical transceivers, work on these projects could slow sharply or come to a complete 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 noted that cloud companies have already bought the AI chips needed for their projects — chips that could sit waiting unused without transceivers to connect them.

ITI made the same point in a letter to the FCC dated August 13, urging the agency not to add transceivers to the trade blacklist and warning 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. Taken together with ITI's August letter, the outreach shows Microsoft pressing its case both through trade groups and directly with policymakers.

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. That would mean the ban applies to newer, higher-capacity modules but not to 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, with wider use expected to increase in 2029. That window could give US manufacturers more time to raise production before any ban takes effect.

They will likely need it. 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, and Zhongji Innolight is also on the Pentagon's list of companies linked to the Chinese military.

US companies Coherent and Lumentum make similar products, but 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. 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 over their use of 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. The next markers to watch are regulatory: whether the FCC formalizes the 3.2-terabit threshold, how the White House answers industry appeals, and whether Congress advances its bill beyond introduction. Until any of that happens, cloud companies are expanding against a rule that does not yet exist.