Microsoft urges Trump administration to lift Chinese data center block
Microsoft and various companies, along with trade groups, have urged the Trump administration to reconsider its plans to prohibit imports from China of a crucial component utilised in AI data centers, according to three source. In August, source indicated that the Trump administration is seeking to prohibit US imports of new models of Chinese optical transceivers, which facilitate the transmission of data over fiber-optic cables at light speed within data centers. The concern is that they could be utilised by Beijing to appropriate data, deploy malware, or interrupt services at US data centers. Microsoft is currently constructing 35 data centers in the United States, with an additional 134 planned, as reported by source. It is part of a coalition of companies and trade associations advocating to the Trump administration that implementing such a ban could severely undermine the United States’ competitive advantage over China in the artificial intelligence sector by further delaying the deployment of data centers, according to sources.
The cloud and software company was among a select group of firms that engaged with officials from the White House Office of Science and Technology Policy and the National Security Council in the weeks following the report to highlight the supply chain challenges that any potential ban would pose, according to two sources. “It really threatens to arguably grind (the data center rollout) to a halt,” said John Miller, which has publicly urged the administration not to move forward with a ban. He said many cloud companies have already purchased the AI chips needed for the buildout. “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 establish connections between servers, routers, and switches.
The Federal Communications Commission, the regulatory body for the US telecom sector, is currently engaged in the process of implementing the ban. The efforts by Microsoft and other firms, which have not been previously reported, illustrate how the agency’s deliberations have triggered concerns within an industry striving to address the increasing demand for cloud and AI services, all while facing a mounting backlash from consumers regarding escalating energy costs and water usage. Microsoft refrained from providing any commentary. The White House and the FCC remained silent in response to enquiries for comment. Beijing “firmly opposes the U.S. overstretching the concept of national security and abusing state power to unjustifiably suppress Chinese companies,” the Chinese embassy in Washington said in a statement. “China will continue to firmly safeguard the lawful rights and interests of Chinese companies.” According to source, China commands two-thirds of the global market for optical transceivers.
Chinese firms such as Eoptolink and Zhongji Innolight, recently included on the Pentagon’s roster of companies with military affiliations, hold a significant position in the global supply chain, serving prominent American hyperscalers among their clientele. According to a report, US-based Coherent and Lumentum manufacture technology that competes with Chinese vendors; however, they do not possess the scale necessary to supplant them. “A Pentagon-listed Chinese military company, including Zhongji Innolight, should not be wiring America’s data centers,” the House Select Committee on China, led by Republican John Moolenaar, said in a social media post following the report. The FCC should “move forward and keep new (China)-linked optical transceivers out of our networks,” the committee added. ITI sent a letter to the FCC on August 13 calling on the telecoms watchdog to “refrain from adding optical transceivers” to a trade blacklist, emphasizing the “potential effects that supply disruptions could have on data center deployment and US AI leadership.”
Morgan Stanley indicated in an October client note that the Trump administration was contemplating prohibiting Chinese optical transceivers that can manage 3.2 terabits of data per second, with production anticipated to increase only by 2028 and widespread installation projected for 2029. Such a threshold could prevent friction between US companies and Beijing, while allowing US optical firms the opportunity to scale up production. The FCC has not publicly addressed the optical transceiver issue; however, two sources indicated that the 3.2 terabit per second threshold is currently under consideration. Legislators may be inclined to act without delay. In September, a bipartisan coalition of US legislators put forth a bill aimed at prohibiting the federal government from outfitting critical government systems with optical transceivers manufactured in China.
