China has infected every part of our internet stack. From our telecoms to our routers, we are in the midst of a full-scale invasion. But it’s not just your home services that are adversely impacted, because the data centers running every AI trained model are particularly vulnerable.
Why? China owns an essential device that every AI model trained in America depends on. They’re called optical transceivers. These devices turn electrical signals into light, which lets servers “talk” to each other over fiber inside a data center and between data centers.
For AI, these transceivers are essential to build AI clusters, which are a group of computers linked together to train and run large artificial intelligence systems expeditiously. Optical transceivers are critical to their operation. As one publication put it, “A single unstable optical link can trigger disruptive link flaps that derail AI training runs resulting in loss of time, resources, and money.”
Herein lies the rub: Beijing controls almost all of our optical transceivers.
Indeed, three companies make optical transceivers at scale. One is the American firm Coherent. The other two are Chinese: InnoLight and Eoptolink. Smaller players include Lumentum in the U.S., plus Source Photonics and Fast Photonics, both of which have deep ties to China. InnoLight and Eoptolink alone supply roughly two-thirds of the optical transceivers in U.S. data centers.
Worse, American hyperscalers are funding China’s invasion. Google Capital led the company’s $38 million Series C round, its first investment in China. InnoLight named Google as its “largest shareholder and customer.” U.S. tech giants gave Chinese suppliers the money and the order volume to scale up; this directly took market share away from American manufacturers.
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Chinese firms are now skirting our reshoring efforts by building U.S. factories so they can qualify for exemptions from semiconductor tariffs. Fast Photonics is based in China and operates here through a U.S. subsidiary in Texas. And in June, Dongshan Precision, China’s leading circuit board maker, announced plans to acquire Source Photonics, which operates here through a California subsidiary.
This may appear to be a positive, but it’s a complete head fake. Why? Well, a “Made in Texas” label doesn’t change who actually controls the company. Or who writes the firmware. Or where the parts originate.
Put another way, final assembly in Richardson, Texas, doesn’t address the concern of Chinese military suppliers running the supply chain.
This impacts cybersecurity. Transceivers sit directly in the path of the data: Every bit that moves between servers passes through them. A compromised module could be built to copy traffic headed to specific IP addresses and send it somewhere else. It would also be very hard to catch. Transceivers constantly send null packets, which are filler with no real information in them. A malicious device could swap a null packet for a copied one without changing the traffic volume, so network monitoring tools would see nothing unusual.
We spent years ripping Huawei and ZTE out of our telecom networks over exactly this kind of exposure. We shouldn’t invite the same threat into the facilities that will train frontier AI models and run sensitive government and commercial workloads.
Worse, China only gains more leverage over our supply chain. The logic being that, with these players, Beijing can quietly tell InnoLight and Eoptolink to slow-walk shipments to American customers to stall new data center construction almost overnight. China already weaponizes its dominance in gallium, germanium, and rare earths; why wouldn’t it do the same with optical interconnects? This seems especially obvious when you consider that such actions could hamper America’s lead in AI.
Whoever controls the physical hardware will win the AI race. We need to stop outsourcing a critical piece of it to our chief rival and paying for the privilege. We need to employ a full-throated strategy to address this concern.
First, tariff exemptions should only depend on who owns and controls a factory rathern than where the assembly line sits.
Second, the Commerce Department should bring transceivers under its review authority for information and communications technology because transceivers are network equipment in every meaningful sense.
Third, be targeted. The FCC should place this equipment under its covered list—an official catalog of communications equipment and services determined by the FCC to pose an unacceptable risk to U.S. national security, but it must specify the transceivers most prone to foreign influence. The FCC could tailor its restrictions to new, high-capacity transceivers used in AI data centers; this action disciplines the FCC to go after the models most relevant to hyperscale computing while minimizing disruption to broadband builds that rely largely on lower-speed optics.
Fourth, CFIUS should review Dongshan’s acquisition of Source Photonics’ U.S. operations, and any further expansion of Chinese-controlled production on American soil.
Fifth, use federal buying power. Federal agencies, and the cloud providers that serve them, should have to source transceivers from trusted vendors. That demand would help Coherent, Lumentum, and new entrants scale up.
Finally, the hyperscalers need to look in the mirror. They can’t sell AI dominance as a national security imperative while signing purchase orders that deepen Beijing’s hold on the hardware that makes it possible.
This strategy would put us one step closer to AI dominance.
We publish a variety of perspectives. Nothing written here is to be construed as representing the views of The Daily Signal.
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