The Trump administration is preparing a bill to ban imports of certain Chinese-made components used in data centers, citing national security concerns.
Reuters reported on the 4th, citing sources familiar with the matter, that "the U.S. Federal Communications Commission (FCC) is drafting a bill to block imports of new Chinese-made optical transceivers to protect the core infrastructure underpinning the artificial intelligence (AI) boom." It added that "while officials hope the bill will be issued within the year, the FCC could revise its content or defer implementation."
Optical transceivers are devices that exchange information between data centers using light. If the bill takes effect, it would block the possibility of Chinese companies extracting information from data centers in the United States or planting malicious software to disrupt services. Divyanshi Kaushik, an AI policy expert at Beacon Global Strategies, noted that "the larger the data center scale, the more essential it becomes to secure supply chain security," pointing out that "transceivers are a real risk factor."
The company expected to be hit hardest by the measure is Chinese optical communications firm Zhongji Innolight. The company was already named in June on a list of Chinese military-linked companies designated by the U.S. Department of Defense. According to Counterpoint Research, Zhongji Innolight ranks first in the global data transceiver market with a 27% share and earns 90% of its revenue from outside China. U.S. firms Coherent and Lumentum are considered comparable in technological capability but still lag in production scale.
Reuters noted that "if the bill takes effect, U.S. cloud companies such as Amazon Web Services (AWS) would have to shift their component sourcing to products from Coherent, Lumentum and others, which could increase cost burdens." In that case, they would have to use higher-priced U.S. alternatives instead of relatively cheaper Chinese-made components, which could raise the costs of building and operating data centers.
The FCC previously placed Chinese telecommunications equipment companies such as Huawei and ZTE on the "Covered List," a roster of firms deemed national security threats, in 2021. It has since broadened the scope of regulation, adding several Chinese companies, including drone maker DJI, to the Covered List in December last year and this March to ban imports of routers and drones. The move to regulate optical transceivers is being seen as an extension of this series of advanced-technology controls targeting China.
