President Donald Trump last week signed an executive order declaring a national emergency over foreign-made equipment used in America’s power grid and data centers, citing “extraordinary foreign threat” from Chinese supply chains feeding the AI infrastructure boom.
The move represents the most aggressive federal intervention yet into the infrastructure underpinning America’s rapidly expanding artificial intelligence sector, which has seen unprecedented growth in electricity demand as tech giants race to build massive data centers to power AI applications. The timing reflects mounting concerns in Washington that the United States has become dangerously reliant on foreign adversaries for the physical backbone of technologies considered essential to economic competitiveness and national security.
The order gives the U.S. Energy Department authority to prohibit or place conditions on certain transactions involving equipment used in the power grid and data centers — a direct shot at Chinese companies that supply 30% of U.S. transformers and switchgear and over 40% of battery imports. This regulatory framework will allow officials to review individual transactions and impose restrictions on a case-by-case basis, potentially blocking sales or requiring modifications to equipment before deployment in sensitive facilities.
“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.”
The executive order draws on national security statutes that allow presidents to regulate commerce during declared emergencies, powers that have been used sparingly in the past but are now being applied to address vulnerabilities that have accumulated over decades of globalized supply chains. The designation of a national emergency unlocks authorities that would otherwise require lengthy congressional approval, enabling the administration to act quickly on what it characterizes as an urgent threat.
Trump named transformers, transmission lines, conductors, substations, high-voltage circuit breakers and power control electronics as “essential to the national defense” in an April Presidential Determination that set the stage for last week’s order.
Yury Dvorkin, an associate professor at Johns Hopkins University, confirmed the scope of the exposure: “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 that the risk extends upstream to raw materials — “copper, electrical steel, and battery cathode materials.” This dependency on Chinese suppliers for both finished components and the raw materials needed to produce them domestically creates a multi-layered vulnerability that cannot be quickly resolved even with determined policy intervention.
Ben Boucher, senior analyst at Wood Mackenzie, singled out one component as particularly critical: “The most notable ones include substation transformers, which hyperscalers typically have on site to step transmission voltage down.” These specialized transformers are custom-engineered for high-capacity installations and can take years to manufacture and deploy, making sudden supply disruptions especially problematic for companies building out AI infrastructure on aggressive timelines.
Chinese companies also dominate the optical transceiver market — the high-speed data connections crucial for AI data centers. Zhongji Innolight and Eoptolink lead the world in data center optical transceiver revenue, and Chinese firms together account for roughly two-thirds of global optical transceiver unit supply, according to a Counterpoint report. These components enable the massive data transfers between servers that make large-scale AI training and inference possible, representing another critical chokepoint in the technology stack.
Laveena Iyer, senior analyst at The Economist Group, told CNBC that scrutiny over China’s presence in U.S. data center power infrastructure has grown substantially in recent months. “This is a shift from the previous focus that centred solely on the compute stack,” she said. The broadening scope reflects an evolving understanding among policymakers that controlling semiconductors and software alone is insufficient if adversaries retain leverage over the physical infrastructure that powers and connects computing resources.
Some companies have already moved to expand domestic production. Hitachi Energy announced a $1 billion investment in September 2025 to build up critical grid infrastructure manufacturing in the U.S., including $457 million for a new large power transformer facility. Siemens Energy followed in February with its own $1 billion commitment to U.S. production of grid and gas turbine equipment for AI infrastructure. These commitments, announced before the executive order, suggest that major manufacturers anticipated regulatory changes and began repositioning their supply chains accordingly.
U.S. optical technology firms Lumentum and Coherent stand to benefit from any restrictions placed on their Chinese competitors. Nvidia invested $2 billion each in the two companies in March. The investments signal that leading AI companies are preparing for a supply chain realignment and positioning themselves to secure access to domestically-produced alternatives as restrictions on Chinese suppliers take effect.
Trump’s declaration follows a consistent pattern from his first term — identifying Chinese supply chain vulnerabilities and forcing American industry to rebuild domestic capacity. The AI boom has exposed just how deeply Chinese equipment has penetrated critical U.S. infrastructure. However, unwinding these dependencies will require years of investment and coordination between government and industry, with potential short-term disruptions to the pace of AI infrastructure buildout as companies transition to new suppliers and wait for domestic manufacturing capacity to come online.
