Taiwan must bulk up defense spending to combat China

Last week, Taiwan announced plans to increase its total defense spending to a record NT$606.8 billion or US$19.1 billion, the equivalent to 2.6% of GDP. 

While this might seem like good news, the reality is that this represents only a 3.5% nominal increase over last year’s budget of NT$586.3 billion and a smaller increase in real terms with inflation standing at roughly two percent. 

Most importantly, the proposed budget still falls far short of what the island should be investing in defense. 

Ironically, the smallest growth in Taiwan’s defense budget in half a decade is coming at a time when spending should be accelerating to confront the growing threat the deomocracy faces. 

To give credit where it is due, President Tsai Ing-wen reversed years of stagnant military spending, pushing through seven consecutive increases and nearly doubling Taiwan’s defense budget over the course of her tenure.

Just as important, she has 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, and initiated an overhaul of Taiwan’s reserve forces. 

She is leaving a much stronger military to her successor than the one she inherited. 

Territorial ambitions

These substantial increases and a heightened focus on improving the military’s combat capabilities reflect the far more dangerous international environment for Taiwan. 

As noted in our recent CFR-sponsored Independent Task Force report on Taiwan, Russia’s invasion of Ukraine serves as a reminder that war is not a relic of the past but is instead a tool that countries continue to employ to satisfy their territorial ambitions. 

It also demonstrates that authoritarian leaders with few internal political constraints can and will bear substantial costs to pursue their legacies.

Chinese leader Xi Jinping has employed greater military, diplomatic, and economic pressure on Taipei and imbued cross-strait issues with greater urgency. 

Although he has not put an explicit timeline on achieving unification with Taiwan, Xi has repeatedly linked it to the “rejuvenation of the Chinese nation,” which he has stated must be achieved by 2049. 

His report to the 20th National Congress of the Communist Party of China in 2022, for instance, noted:

Resolving the Taiwan question and realizing China’s complete reunification is … a natural requirement for realizing the rejuvenation of the Chinese nation.”

In last year’s speech to the National People’s Congress, Xi asserted that achieving unification “is the essence of national rejuvenation.” 

While Beijing continues to assert a preference for achieving unification through peaceful means, it has embarked on a remarkable military modernization campaign. 

Preparing for a war in the Taiwan Strait has been the People’s Liberation Army’s top priority. 

CIA Director William Burns pointed out that the United States knows “as a matter of intelligence” that Xi has ordered the PLA to be ready to invade Taiwan by 2027. China’s official defense budget is now US$224 billion, nearly 12 times Taiwan’s defense spending. 

Military balance

Beijing has developed an array of capabilities intended to win a war in the Taiwan Strait – principally ballistic missiles, submarines, modern air defense units stationed on China’s east coast, and reclaimed land in the South China Sea that can range beyond Taiwan, as well as advanced fighters and long-range bombers. 

As a result of these sustained investments, the military balance in the Taiwan Strait has dramatically shifted in China’s favor. 

China has more than 1,900 fighter aircraft to Taiwan’s 300 and 71 submarines to Taiwan’s two. Although Taipei has an additional two World War II-era submarines, they are only used for training. China also has 45 frigates to Taiwan’s 22 and 36 destroyers to Taiwan’s four. 

In addition to its quantitative strength, the PLA now fields nuclear-powered submarines, fifth-generation fighter jets, and other cutting-edge capabilities that Taiwan’s military lacks. 

While Taipei cannot be expected to match Beijing’s military spending dollar for dollar, it will need to both spend more and invest that money wisely to maintain deterrence.

In practice, this means procuring more anti-tank and anti-aircraft missiles, investing in rapid mining capabilities, developing drones and unmanned underwater vehicles, expanding domestic defense industrial capacity, and hardening critical infrastructure. 

Given its limited resources, Taiwan will have to make difficult decisions and divest some legacy platforms in favor of investing in a greater quantity of cheaper systems.

Analysts often focus on defense spending as a percentage of GDP as a critical indicator of how seriously a country is taking the threats that it is facing.

Taiwan’s defense spending, at around 2.6% of GDP, outpaces many NATO allies such as the United Kingdom, France, Italy, and Germany. 

At the same time, however, Taiwan’s spending is not commensurate with countries that face similar existential threats such as Israel, whose 2022 budget was 4.5% of GDP. 

The United States, by comparison, spends 3.5% of GDP on defense, and during the Cold War routinely spent between five to 10% of GDP. 

Government spending

Another way to look at the extent to which Taiwan, or any country, prioritizes defense is to look at its military budget as a percentage of total government spending. 

As Richard Bush recently showed, however, while the threat the island faces has consistently grown for the past two decades, its defense spending as a percentage of the total government budget has remained remarkably stagnant at around 11%. 

Taiwan will need to make difficult tradeoffs in the years ahead and will need to prioritize defense spending over other areas. 

During the past seven years, it has made substantial progress in digging itself out of the hole it put itself in due to years of stagnant budgets and the misallocation of limited military resources. 

But it has more digging to do, a task that will only become more difficult as China continues to improve its military capabilities with an eye on Taiwan. Tsai’s successor will need to make sustained investments in defense and use that money wisely to deter Chinese aggression. 

David Sacks is a fellow for Asia studies at the Council on Foreign Relations (CFR). His work focuses on US-China relations, US-Taiwan relations, Chinese foreign policy, and cross-Strait relations. Read his full bio here.

This article, originally a Blog Post, was published by the Council on Foreign Relations under a Creative Commons license. Read the original here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.