Evan Swarztrauber: The Hidden Supply-Chain Risk Inside America’s AI Data Centers
The FCC should add Chinese-made optical transceivers to its covered list before America's AI data centers become dependent on an adversary's supply chain.
The conflict in Iran gives a window into the evolving definition of “military target,” at least according to our adversaries. In March, Iranian drones struck two Amazon Web Services data centers in the United Arab Emirates and damaged a nearby facility in Bahrain.
The message should be clear: America’s enemies are aware of our warfighters’ increased reliance on artificial intelligence, and they’re willing to act on it.
The Trump Administration is right to consider data center infrastructure a national security imperative, especially as the Department of War relies on commercial operators like Amazon, Microsoft, Google, and Oracle for its cloud services. And there is broad agreement that we need a secure supply chain for the components that build that infrastructure.
The Federal Communications Commission (FCC) is reportedly considering adding new Chinese-produced optical transceivers to its covered list. And if the agency follows recent precedent, such a move would effectively ban new foreign-made transceivers from being sold and imported into the U.S without an exemption. This is welcome news, and the agency should follow through.
Optical transceivers are effectively the connective tissue of a data center. AI chips process information electronically, while fiber carries that information as light. Transceivers act as translators between the two, turning electronic signals into light that can travel over fiber, and then turning them back again at the other end. If AI chips are the brains of a data center, optics are the nervous system.
Modern transceivers aren’t passive transmitters. They have processors and proprietary firmware that can be updated after installation. Compromised firmware could potentially degrade or disable optical links, disrupting data center operations and the flow of information.
While the U.S. dominates the world in advanced AI chips, China has a commanding market share of optical transceivers. Its manufacturers—namely designated Chinese Military Company Zhongji Innolight, as well as Eoptolink—supply roughly two-thirds of global optical-transceiver units.
Despite the availability of American alternatives, U.S. hyperscalers are currently far too dependent on Chinese suppliers. And China has a long history of seeking to corner strategic markets like solar panels, batteries, and legacy chips through predatory pricing, state subsidies, or other means. When it came to wireless networks, the U.S. woke up to the threat only after Huawei had embedded itself in rural networks. Years later, the country is still implementing a $5 billion program to literally rip and replace that equipment with trusted vendors.
We are early enough in AI deployment, and have hopefully learned enough, not to make that same mistake with optical transceivers. And businesses respond to incentives. Left to their own devices, American companies have all-too-often chosen short-term profit and cost-savings at the expense of long-term strategic dependency on foreign adversaries. This instinct gives China every incentive to keep subsidizing industries to undercut U.S. competitors.
Drones are a case study in how government can steer the incentives of corporate America to align with the national interest. It should be obvious, after observing the conflicts in Ukraine and the Middle East, that any country with a serious military needs to be able to manufacture drones within its borders. FCC Chairman Brendan Carr reported that billions are flowing into U.S. drone manufacturing since the FCC added drones to its covered list, creating thousands of jobs.
The same should happen for optical transceivers. American manufacturers are already scaling capacity in response to booming demand. Applied Optoelectronics announced 400,000 square feet of additional manufacturing capacity in Texas; Coherent broke ground on expanding its operation in the Lone Star state as well; and Lumentum is prepping new capacity in North Carolina. Western suppliers can’t replace Chinese volume overnight. But if the FCC acts on its reported proposal, we can expect to see even more expansion from trusted companies in the ecosystem.
The 21st century battlefield depends in no small part on the data centers and networks that optical transceivers connect. We simply cannot rely on an adversary that has the means to disrupt those communications, withhold support or replacement equipment, or cut off new supply entirely in the event of a major conflict.
You will see the usual complaints from companies that prefer the option to buy from China. They argue that the FCC’s actions across routers, drones, and robotics increase costs, disrupt their operations, and so on. But the FCC has a proven track record of managing the transition to domestic production in a thoughtful and sequenced manner.
One factor the government considers in granting Conditional Approvals, and allowing companies to pace their shift, is whether businesses present credible plans to onshore. While cries of poverty by an industry spending hundreds of billions on data centers should arguably fall on deaf ears, they can expect the same reasonable approach that the FCC has taken with other industries impacted by its covered list.
Across industries critical to national security, the FCC and the Trump administration have demonstrated a recognition that we cannot rely on foreign adversaries for those supply chains and we must be able to make critical products at home or source them from trusted partners. Adding optical transceivers to the covered list is a natural extension of that leadership. Let’s ensure that the data centers we build are secure in the first place.
Evan Swarztrauber is a senior fellow at the Digital Progress Institute, a bipartisan technology and telecommunications policy think tank in Washington, DC. Previously, he was a policy advisor at the Federal Communications Commission to then-Chairman Ajit Pai and Commissioner Brendan Carr. This Expert Opinion is exclusive to Broadband Breakfast.
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