US closes loophole that allowed Chinese-owned subsidiaries located outside China to buy AI chips
The FCC has banned the import of other products of specific types and from specific manufacturers before, but if it were to ban the import of optical transceivers, that would be the first time it had enacted such a measure. The term "new models" suggests such a ban would include the latest in interconnect technologies, including co-packaged optics (CPO) and near-packaged optics (NPO) integrated into network switches.
Although the U.S. may opt to deploy a transitional ban that only blocks the sale of new optical transceiver designs, leaving existing designs and contracts intact and saleable, it would still present a problematic disruption for American AI companies wanting to build cutting-edge data centers. China's optical module manufacturing, packaging, and testing are all key elements of the global optical interconnect supply chain, especially since a key raw material, indium phosphide, relies heavily on China's indium supply, with it controlling some 70% of the global market .
China restricted the export of indium in 2024, causing a reduction in global sales of the key material.
Even if the materials required can be sourced elsewhere, though, there's no suggestion U.S. manufacturing can scale up anywhere near quick-enough to respond, or indeed, at all. Key U.S. optical transceiver manufacturers, Coherant and Lumentum, are already running at capacity and are still around 30% overbought by their customers. A $2 billion investment from Nvidia will help, but the leaders there don't believe they'll be able to service the increasing demands of a hungry AI industry. Let alone if Chinese supplies are cut.
All of this assumes, too, that the Chinese authorities won't respond – and they certainly have a history of doing so. When America has restricted access to cutting-edge chips and chip design software, China has cut off raw material access . When the U.S. banned imports of Chinese hardware, China doubled down on investing in its domestic market and sources, as well as fighting to build friendly relations with other countries and markets.
That has already been happening in the optical interconnect space. In 2025, Chinese manufacturers only accounted for 16% of the global production capacity of electro-absorption modulated lasers (EMLs) and continuous-wave (CW) lasers. But in 2028, that capacity is expected to reach almost 28%. Will that additional production capacity go to help accelerate China's own domestic AI efforts, or will it end up being sold to major AI companies in Western markets?
It may be possible for Chinese suppliers and Western buyers to circumvent any new optical transceiver restrictions. Almost all the major bans and blockades from the Trump administration have included carve-outs for specific deals that can be struck — often seemingly at the whims of whatever official is involved in the deal-making. But they're there, and it may be that a phone call to the right person allows the right materials through, making any potential ban just the price of doing business.
But if not, it has the potential to put the brakes on the next phase of rapid AI infrastructure build-out that is making data centers more capable, campuses more efficient, and hinting at a future where even in consumer devices, the specific placement of components within them may no longer be constrained by the limitations of copper.
Jon Martindale is a contributing writer for Tom's Hardware. For the past 20 years, he's been writing about PC components, emerging technologies, and the latest software advances. His deep and broad journalistic experience gives him unique insights into the most exciting technology trends of today and tomorrow. ","collapsible":{"enabled":true,"maxHeight":250,"readMoreText":"Read more","readLessText":"Read less"}}), "https://slice.vanilla.futurecdn.net/13-4-25/js/authorBio.js"); } else { console.error('%c FTE ','background: #9306F9; color: #ffffff','no lazy slice hydration function available'); } Jon Martindale Freelance Writer Jon Martindale is a contributing writer for Tom's Hardware. For the past 20 years, he's been writing about PC components, emerging technologies, and the latest software advances. His deep and broad journalistic experience gives him unique insights into the most exciting technology trends of today and tomorrow.
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- https://www.tomshardware.com/tech-industry/fcc-proposes-import-ban-on-chinese-optical-transceivers-blockade-targets-key-ai-interconnects-as-china-holds-56-percent-global-market-share#main
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