Bipartisan lawmakers introduced legislation on Friday to prohibit the federal government from using optical transceivers manufactured by Chinese companies Eoptolink and Zhongji Innolight in sensitive systems. The move aims to mitigate national security risks associated with critical networking components essential for AI data centers.

Security concerns drive legislative push

Optical transceivers convert electrical signals into light for fiber-optic transmission, a function increasingly vital to AI infrastructure where computing demand requires millions of such devices. Senator Dave McCormick stated that the United States should not rely on China for technologies essential to national security. Senator John Cornyn emphasized that critical government communication and information systems must remain safe, reliable, and free of foreign interference.

Supporters argue that Chinese-made transceivers could potentially be exploited by Beijing to interfere with access to US AI tools and cloud infrastructure. Zhongji Innolight has previously been included on a Pentagon list of companies alleged to have ties to China’s military. The proposed restrictions would initially apply to the two named manufacturers, while granting the Commerce and Defense secretaries authority to add other companies to the restricted list.

Industry warns of supply chain disruption

The technology industry has raised concerns that restricting Chinese suppliers could disrupt US data center expansion and hinder American companies' ability to keep pace with China in AI development. The Information Technology Industry Council urged the Federal Communications Commission in an August 13 letter not to add optical transceivers to a trade blacklist, warning of potential supply disruptions affecting data center deployment.

US companies Coherent Corp. (NYSE: COHR) and Lumentum Holdings Inc. (NASDAQ: LITE) offer competing products but currently lack the scale to fully replace Chinese suppliers, according to a Foundation for American Innovation report. If enacted, the bill provides the government five years to comply with the restrictions.

Diplomatic efforts continue alongside restrictions

Treasury Secretary Scott Bessent stated on Sunday that the US is seeking a shared vision of common goals and threats with China regarding AI. Washington has proposed a framework for both countries to notify each other of AI incidents that could pose national security risks. This diplomatic effort occurs amid China’s broader efforts to expand and strengthen its domestic AI infrastructure.

US President Donald Trump pressed Chinese President Xi Jinping during talks in Washington to halt direct or indirect assistance to Iran. Trump described Chinese support for Tehran as "totally unacceptable," according to US Ambassador to China David Perdue.

Perdue stated that Washington received assurances from Beijing on Thursday that China would not continue assisting Tehran. The ambassador noted that the US had already observed some movement on the issue following these discussions.

Conflicting narratives emerge

The diplomatic pressure coincides with reports that China supplied Iran with shoulder-fired air-defense systems and helped Tehran circumvent US sanctions on oil exports. However, an Iranian senior official contradicted the US account, telling Reuters that Chinese officials assured Tehran that Beijing would not restrict its economic, political, or military relationship with Iran due to pressure from Trump.

Allegations of military and economic aid

Washington is examining specific allegations regarding Chinese entities' role in supporting Iran. Key points of contention include:

• Military hardware: Reports indicate Iran was expected to receive Chinese-made shoulder-fired air-defense missile launchers.
• Sanctions evasion: Tehran reportedly used barter-like arrangements to continue selling oil and purchasing Chinese goods despite sanctions.
• Intelligence sharing: Trump previously played down reports that Chinese entities provided satellite imagery to Iran before an attack in Jordan that killed three US troops.

Legislative pressure

US lawmakers had urged Trump to confront Xi over allegations that Chinese entities provided assistance to Iran that may have contributed to attacks resulting in US casualties. The administration's stance reflects a broader strategy to isolate Iran economically and diplomatically, with officials suggesting that curbing Chinese support is central to this approach.