Microsoft Lobbies White House to Keep Its Supply Chain

Microsoft has been pressing the Trump administration to halt plans to bar Chinese imports of a key component used in AI data centers, three people familiar with the situation told Reuters. The company doesn't make policy. It just sits in the room where policy gets made.

The component is the optical transceiver, the part that lets data travel over fiber-optic cables inside a data center. Reuters reported in August, about three months ago, that the administration wants to ban US imports of new models of Chinese optical transceivers. The stated worry: Beijing could use them to steal data, install malware or disrupt service at US data centers.

Who Has the Power

Microsoft was one of a handful of firms that met with officials from the White House Office of Science and Technology Policy and the National Security Council in September, about two months ago, to flag the supply chain problems a ban would create, two of the sources said. A group of companies and trade groups is making the same case, according to the sources. Their pitch is that a ban could irreparably damage the US edge over China in the AI race by slowing the data center rollout further.

The Federal Communications Commission, which oversees the US telecom industry, is working on the ban. The lobbying, which hadn't been reported before, shows how the agency's deliberations have set off alarms in an industry racing to meet surging demand for cloud and AI services. Microsoft declined to comment. The White House, the FCC and the Chinese embassy in Washington didn't immediately respond to requests for comment.

The numbers explain the urgency. Microsoft has 35 data centers under construction in the US and another 134 planned, according to Cleanview, a market intelligence company that tracks data center development.

Who Gets Crushed

The industry's own framing sneaks in a detail that matters. Reuters notes the rollout is already under "a growing backlash by consumers over rising energy costs and water use." Those are the people paying for the buildout in their utility bills and their water supply. Nobody asked them. They don't get a meeting with the National Security Council.

John Miller, general counsel of the Information Technology Industry Council (ITI), a tech lobbying group, said a ban "really threatens to arguably grind (the data center rollout) to a halt." He said many cloud companies have already bought the AI chips they need. "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 need millions of optical transceivers to connect servers, routers and switches.

ITI sent a letter to the FCC on August 13, about three months ago, urging it 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."

What They're Calling "Security"

China holds two-thirds of the global optical transceiver market, according to Counterpoint Research. Chinese firms Eoptolink and Zhongji Innolight dominate global supply, and top American hyperscalers are among their customers. Zhongji Innolight was added to the Pentagon's list of Chinese military-backed companies. US-based Coherent and Lumentum make competing technology but lack the scale to replace Chinese vendors, according to a report by the Foundation for American Innovation.

So the same corporations that buy from these suppliers now lobby the state to protect those purchases, while the state weighs a ban in the name of national security. Both sides speak the language of the "AI race." Neither speaks of the people living next to the servers.

Morgan Stanley said in an October client note that the administration was considering barring Chinese transceivers capable of handling 3.2 terabits of data per second, with production not expected to ramp up until 2028 and widespread installation in 2029. The threshold, the note suggested, could avoid antagonizing US companies and Beijing while giving US optical companies time to expand production. Two of the sources said the 3.2 terabit threshold is under consideration. The FCC hasn't addressed the issue publicly.

The Legislative Footnote

In September, a bipartisan group of US lawmakers introduced legislation to bar the federal government from equipping sensitive government systems with Chinese-made optical transceivers. Note the scope: the government's own systems. The bill says nothing about the communities hosting these data centers or the households absorbing their energy and water costs.

The fight, in the end, is over how fast the machines get built and whose supplier gets paid. The people who live beside them are the one party not at the table.