China retaliates with drone export curbs, blacklists 6 US entities

China's commerce ministry tightened export controls on drones and critical components bound for the US and blacklisted six American entities, escalating a tech trade war that has already reached data-center equipment.

"Beijing is matching Washington's escalation measure for measure, and the drone and transceiver curbs are the clearest sign yet that the tech supply chain is now a battleground," said Divyansh Kaushik, an AI policy expert at Washington advisory firm Beacon Global Strategies.

The measures, announced Wednesday, also suspend factory tracking inspections that Chinese certification bodies delegate to American firms, add US compliance testing companies to a retaliation list, and open a national security investigation into imported printing and office equipment.

The retaliation follows a string of FCC actions against Chinese drones, routers, robots, inverters and, most recently, data-center optical transceivers — a market where China's Zhongji Innolight holds a 27 percent global share. US transceiver makers Lumentum, Coherent and Applied Optoelectronics jumped 7 percent, 11 percent and 18 percent on the news, while Chinese optical module makers slumped.

Drone Curbs Hit a Sector Already Under Scrutiny

The drone export controls strike at a sector the FCC has already targeted. In December, the agency added Chinese drone maker DJI and other foreign manufacturers to a national security list, and in March it banned imports of new Chinese-made routers. Beijing said the US actions, including the Department of Homeland Security's addition of entities to its "Uyghur Forced Labor Prevention Act" list, "seriously violate" the consensus reached by the two countries' leaders and "seriously harm" China's legitimate rights and interests.

Data-Center Transceivers Become the Next Flashpoint

The escalation comes as the Trump administration drafts a ban on US imports of new models of Chinese data-center components. The FCC is working on a measure to bar imports of new Chinese optical transceivers, which carry data over fiber-optic cables within data centers, with officials hoping to publish it this year. China's Zhongji Innolight, added to the Pentagon's list of alleged Chinese military-backed companies in June, holds a 27 percent share of the global data-center transceiver market and generates 90 percent of its revenue outside China, according to Counterpoint Research and the Foundation for American Innovation.

The ban could raise costs for American cloud firms such as Amazon Web Services, which may be forced to transition to US-based producers Coherent and Lumentum. But those companies lack the scale to replace Chinese vendors, according to the Foundation for American Innovation report.

A Pattern of Tit-for-Tat Escalation

The measures echo a broader pattern of retaliation. After the previous round of US tariffs in 2025, Beijing used export controls on rare-earth minerals, a move that helped prompt a trade détente last October that shelved a group of Commerce Department import restrictions. The FCC has since stepped in, announcing drone and router bans via its Covered List, created by Congress to bar equipment sales by foreign companies posing national security risks.

A House probe released this week found that China Telecom, China Mobile and China Unicom retained equipment, data-center space and network connections in the US after the FCC revoked their authorizations between 2019 and 2022. The committee identified nearly 109,000 incidents from January 2018 through May 2025 in which Chinese or Hong Kong-linked networks allegedly claimed US internet addresses without authorization.

This article is for informational purposes only and does not constitute investment advice.