Trump administration officials are reportedly drafting import rules that would bar imports of Chinese optical transceivers.

Reuters reports the Federal Communications Commission (FCC) is formalizing a measure to restrict such components. Sources suggest the regulation, which may be unveiled before the year concludes, is a security-driven initiative intended to prevent Chinese actors from compromising facilities through hidden malware or unauthorized data exfiltration.

Such a ban could have potentially sizable consequences on U.S. operators, with many of the world’s leading optics makers based in China. Analyst firm LightCounting suggests U.S.-based cloud giants have spent “billions” on optical transceivers, with hyperscalers relying on Chinese vendors for hardware vital to their AI infrastructure buildouts.

Market leaders like Zhongji Innolight, which found itself added to the Pentagon’s list of alleged Chinese military-backed companies in June, count as an optical supplier for Google and Microsoft, while Eoptolink enjoys a partnership with Amazon.

The report suggests a potential ban could raise costs for hyperscalers at a time when the memory crunch is already hampering AI infrastructure capex.

The FCC’s proposed rule would mark the latest in a growing FCC-led effort to take on China, having already widened its ban on imports of Chinese-made network equipment and imposed restrictions on foreign-made routers and devices like Wi-Fi hot spots. The agency is also considering barring U.S. telecom carriers from interconnecting with Chinese data centers.

AI buildout is set to drive the optical transceiver market to be worth $112.3 billion in 2031, per a Yole Group projection. China holds a sizable lead in the optical transceiver market, though the disparity is expected to narrow. LightCounting predicts that the sevenfold advantage held over U.S. competitors in 2022 will contract to a 2.5-times margin by 2031.

Among those on the U.S. side looking to capitalize is Elon Musk, who acquired a startup founded by ex-SpaceX engineers developing optical transceivers for AI data centers as well as satellite connectivity.