American reliance on China for key components used to power data centers is coming under increasing scrutiny as Washington and Beijing battle for AI supremacy, raising the prospect of higher costs and worsening supply chain shortages for the AI buildout.
U.S. hyperscalers are racing to build multibillion-dollar data centers for AI, and Chinese firms supply large portions of the parts needed to develop these facilities. These include transformers, switchgear, batteries and optical tech, analysts told CNBC.
President Donald Trump signed an executive order last week declaring a national emergency around the “extraordinary foreign threat” to the U.S. involving bulk-power system equipment produced abroad. The order authorized the Energy Department to prohibit or impose conditions on certain transactions involving some components used in the grid and data centers.
Tensions between the U.S. and China over AI have ratcheted up as Chinese AI models become more advanced and their adoption grows across the globe. While American companies produce the most advanced chips and hardware used for AI, Chinese influence on the tech used to power data centers is considered a strategic vulnerability for the U.S.
“Scrutiny over China’s presence in the U.S. data centre power stack has only risen over the past eight months or so, this is a shift from the previous focus that centred solely on the compute stack,” Laveena Iyer, senior analyst at The Economist Group, told CNBC.
Dependencies
The power stack in a data center is critical to keeping the facility running with minimal downtime. It includes transformers, which change high-voltage electricity from the grid to lower levels needed for servers and cooling equipment. Switchgear are centralized systems that feature switches, fuses and circuit breakers and batteries are needed for backup power.
“There are a few key areas that the AI infrastructure buildout is increasingly dependent on Chinese imports,” Ben Boucher, senior analyst, supply chain for Wood Mackenzie, told CNBC. “The most notable ones include substation transformers, which hyperscalers typically have on site to step transmission voltage down.”
“The mid-term exposure is concentrated in grid connectors: transformers, switchgear, and batteries,” Yury Dvorkin, associate professor at Johns Hopkins University, told CNBC.
“China’s share of certain transformer and switchgear categories runs near 30%, and it accounts for over 40% of U.S. battery imports,” he added. “Our analysis shows that there is also a deeper exposure upstream: copper, electrical steel, and battery cathode materials.”
Optical technology, which uses light through fiber-optic cables instead of electrical signals through copper wires to transmit huge quantities of data, is also an area where China dominates.
Companies including Zhongji Innolight and Eoptolink lead global data center optical transceiver revenue, with Chinese firms collectively accounting for roughly two-thirds of global unit supply, according to research firm Counterpoint.
Trump said that “transformers, transmission lines and conductors, substations, high-voltage circuit breakers, power control electronics” were “essential to the national defense” in April as part of a Presidential Determination.
Reducing reliance
Washington is scrambling to reduce reliance on Chinese suppliers as it rapidly develops the infrastructure needed to power AI.
“Since my first term, the threat to the United States regarding foreign supply of bulk-power system electric equipment has become even more acute,” said Trump in a statement connected to the executive order published last week.
“The rapid growth of advanced manufacturing, data centers, artificial intelligence, and defense production has increased the Nation’s dependence on abundant, reliable electricity and magnified the consequences of a successful attack or supply disruption on the bulk-power system,” he added.
“We oppose overstretching the concept of national security to go after foreign enterprises,” a spokesperson for the U.K. embassy of the People’s Republic of China told CNBC. “We hope relevant countries will provide a fair, just and non-discriminatory business environment for Chinese companies.”
U.S. data center capacity is forecast to grow from 62 GW in March 2026 to 152 GW by 2030 due to high-density AI workloads, S&P Global said in June.
“Reshoring manufacturing that’s critical to our national and economic security has been a top priority for President Trump, and the Administration continues to deliver with a robust and nimble agenda of tax cuts, tariffs, and deregulation,” a White House spokesperson told CNBC. “Trillions in investments across key sectors – from steel to semiconductors to autos – prove that the Administration’s strategy is paying off.”
Hitachi Energy announced in September 2025 it would invest $1 billion to expand production of critical grid infrastructure in the U.S., including $457 million for a new large power transformer facility to meet demand from the AI buildout. Siemens Energy also said in February it would invest $1 billion in U.S. production for grid and gas turbine equipment for AI infrastructure and data center expansion.
Power inverters produced in foreign countries, which help connect energy sources for AI facilities, were added to the Federal Communications Commission’s (FCC) Covered List in July, which features equipment and services the U.S. government has determined pose an unacceptable risk to national security.
The Trump administration is also reportedly drafting a ban on U.S. imports of new Chinese optical transceivers, which allow data to travel at high speed over fiber optic cables between data centers. The FCC, which oversees the telecoms industry, did not respond to a request for comment and the White House did not address the report.
While any restrictions on Chinese optical tech companies could boost U.S. firms like Lumentum and Coherent — both of which received $2 billion in investment each from Nvidia in March — analysts cautioned that scaling manufacturing to meet new demand could come with challenges.
“Western competitors like Coherent and Lumentum possess advanced photonic designs, but currently lack the cleanroom capacity, automated packaging infrastructure, and yield scale required to absorb Innolight and Eoptolink’s volume within a 12-to-24-month horizon,” Neil Shah, VP research at Counterpoint said in an August report.
Fallout from restrictions
An optical transceiver ban would mean that U.S. hyperscalers will have to look for alternatives locally, potentially pushing up costs, said The Economist Group’s Iyer.
Power transformers and substations are already in an estimated market shortage of 15% and 8%, respectively, in 2026, and restrictions on the use of units made in China are set to further exacerbate the supply chain challenges, according to Wood Mackenzie research.
“A bulk of the impacts will be centered around data centers who have been using Chinese units to minimize lead times,” Wood Mackenzie’s Boucher said in a blog from August.
“The 100 MVA+ segment is where the shortage is already most acute, and it is precisely where data centers have been turning to Chinese manufacturers to manage lead times,” he added.
But political will in Washington to reduce dependencies on China in the power stack is rising, Iyer added. “The U.S. administration appears keen to de-risk its AI infrastructure before Chinese tech is fully embedded in it, quite like the 5G rollout where removing Chinese telecoms gear later on led to network rollout delays and rising costs for telecoms companies.”
