Taiwan’s Latest Defense Budget Risks Falling Further Behind China

Taiwan’s President, Lai Ching-te, has unveiled plans to increase defense spending by nearly six percent, reaching almost $20 billion next year. While Lai stated that such an increase demonstrates Taiwan’s commitment to its security, the proposed budget does not adequately convey a sense of urgency. Instead, Taiwan’s military is set to fall further behind China’s People’s Liberation Army (PLA) and deterrence in the Taiwan Strait will continue to erode. With Chinese pressure intensifying, Taiwan needs to increase defense spending far more rapidly to both show its partners that it takes the threat posed by China seriously and generate uncertainty within China’s leadership as to whether a blockade or invasion of the island would succeed. 

Credit Where Due 

Taiwan should be given credit for reversing a worrying erosion of its military capabilities. President Lai’s predecessor, Tsai Ing-wen, also of the Democratic Progressive Party, pushed through seven consecutive increases to Taiwan’s defense budget, in the process nearly doubling Taiwan’s defense spending. Lai’s six percent increase is also significantly higher than the last increase Tsai oversaw, which was 3.5 percent. Taiwan’s defense spending is now equivalent to roughly 2.5 percent of GDP, exceeding the baseline set for members of the North Atlantic Treaty Organization. 

In addition to increasing defense spending, President Tsai extended compulsory military service from four months to one year, prioritized asymmetric weapons such as missiles and mines, invested in Taiwan’s defense industrial base, oversaw the successful development of an indigenous submarine, and began an overhaul of Taiwan’s reserve forces. These were important steps that increased Taiwan’s combat capabilities. 

Despite such progress, one critique of Tsai was that she was unable to lead a cultural shift within Taiwan’s Ministry of National Defense (MND), which is known for its conservatism, its attachment to legacy platforms such as fighter jets and large surface warships, and its skepticism toward adopting an asymmetric approach to defense. Tellingly, all her defense ministers were retired generals not known for innovative thinking. 

There are encouraging signs that Lai understands the MND needs to be overhauled so that overdue reforms can be rapidly implemented. He appointed Wellington Koo, who served as the secretary-general of the National Security Council (NSC) under Tsai, as his minister of defense. Koo is only Taiwan’s third purely civilian defense minister (his two civilian predecessors lasted less than 100 days). At the NSC, Koo gained an understanding of Taiwan’s complex security environment, U.S.-Taiwan relations, and how Taiwan’s MND is viewed both more broadly within Taiwan’s government and by foreign observers. 

Koo has already taken a number of steps intended to signal that he will scrutinize the MND’s practices, change its culture, and foster innovation. He set up a new entity within the MND modeled on the U.S. Defense Innovation Unit to quickly integrate new technologies into the military, announced that Taiwan’s large-scale annual military exercises would be less scripted and focus on decentralizing command and control, discontinued bayonet training and goose-stepping, and introduced more flexible leave policies for the armed forces. More ambitious policies will likely be rolled out in the coming months. 

More Needs To Be Done – And Fast 

Despite such progress, the reality is that most foreign observers focus on one metric to gauge how committed Taiwan is to its security: defense spending as a percentage of GDP. The consensus is that Taiwan is still not taking the existential threat that it faces seriously enough and should raise defense spending far more rapidly.  

Nearly two decades after President Chen Shui-bian pledged to increase Taiwan’s defense spending to three percent of GDP, Taiwan has yet to meet that target, which should be viewed as a floor rather than a ceiling. Observed through a comparative lens, Taiwan’s defense spending is not commensurate with those that face similar existential threats such as Israel, whose 2022 defense spending totaled 4.5 percent of GDP. Meanwhile, the United States spends 3.4 percent of GDP on defense, and during the Cold War routinely spent between 5 to 10 percent of GDP.  

On the current trajectory, Taiwan risks falling further behind the PLA. Despite an economic slowdown, China announced it would increase its defense budget by 7.2 percent, to $222 billion, for 2025. China’s military spending is therefore growing faster than Taiwan’s from a much higher baseline, meaning that the gap between the two will grow wider. As the U.S. Department of Defense has noted, “The PRC’s multi-decade military modernization effort continues to widen the capability gap compared to Taiwan’s military.” 

Taiwan does not need to spend more on defense just for the sake of doing so; rather, it has urgent needs that can only be addressed with more resources. Taiwan, which recently transitioned from a conscription-based force to an all-volunteer force, needs to offer greater monetary incentives to entice its citizens to join the military. With the PLA conducting more frequent military activities in the waters and airspace around Taiwan and the MND insisting on scrambling jets and sending ships to meet those threats, fuel and maintenance costs will continue to rise. Taiwan needs to urgently develop and produce drones and other uncrewed systems and stockpile munitions as part of an asymmetric strategy to defend the island. To make its large upfront investment in its indigenous submarine pay off, Taiwan will also need to spend billions of dollars to produce additional hulls. These are just a few areas where higher defense spending will make a real difference. 

Taiwan, of course, can choose to allocate its money how it wants, but its leaders and citizens should understand that such decisions will impact the extent to which the United States and others support Taiwan. The United States is far more likely to come to the assistance of a friend that it believes has done all it can to prepare for the worst and mounts a stiff resistance if deterrence fails. To that end, Taiwan’s leaders should embrace a new defense spending target of five percent of GDP and rapidly meet that goal through yearly double-digit percentage increases.