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Taiwan's cabinet has approved a significant hike in its defense spending for 2026, setting the budget at NT$949.5 billion, equivalent to about $31.3 billion. This marks a substantial 23% increase from the previous year's allocation and represents 3.32% of the island's gross domestic product (GDP). It's the first time since 2009 that Taiwan's military expenditure has crossed the 3% threshold, signaling a strong commitment to bolstering national security in the face of escalating threats from China.
Premier Cho Jung-tai emphasized that this move demonstrates Taiwan's resolve to protect its sovereignty. He stated during a press conference that the budget calculation follows standards similar to those used by NATO members, incorporating expenses for the Coast Guard Administration and veterans' benefits for the first time. This inclusion acknowledges the Coast Guard's frontline role in daily confrontations with Chinese vessels and its potential integration into naval operations during any conflict.
The decision comes amid growing calls from the United States for Taiwan to shoulder more of its defense burden. Former U.S. President Donald Trump has publicly suggested that Taiwan should aim for defense spending as high as 10% of GDP, while current U.S. officials continue to advocate for increased investments. President Lai Ching-te, who took office earlier this year, had pledged in recent months to push spending beyond 3%, aligning with these international pressures.
Geopolitical context and China's military buildup
China, which claims Taiwan as part of its territory, has intensified its military activities around the island in recent years. Beijing's air force conducts near-daily incursions into Taiwan's air defense identification zone, and large-scale war games have become more frequent. The most recent major exercises occurred in April 2025, simulating blockades and amphibious assaults. These actions have heightened regional tensions, prompting Taiwan to accelerate its military modernization.
In comparison, China's defense budget for 2025 was announced at 1.78 trillion yuan, or approximately $248 billion, reflecting a 7.2% increase over the previous year. This figure outpaces China's economic growth targets and underscores Beijing's rapid military expansion, including the development of new aircraft carriers, stealth fighters like the J-20, and advanced hypersonic missiles. Analysts note that China's actual military spending may be higher than reported, as it excludes certain research and development costs.
Taiwan's response includes focusing on asymmetric warfare capabilities to counter China's numerical superiority. The island's armed forces, numbering around 215,000 active personnel, face a People's Liberation Army (PLA) with over 2 million troops. Global Firepower rankings for 2025 highlight this disparity: China ranks third in overall military strength, while Taiwan is 24th. However, Taiwan benefits from advanced U.S.-supplied systems, such as Patriot missiles and F-16 fighters, though delivery backlogs have delayed some acquisitions.
Key areas of investment
The proposed budget allocates funds across several critical sectors to enhance Taiwan's deterrence posture:
- Development of indigenous submarines: Taiwan is advancing its Hai Kun-class submarine program, with the first prototype launched in 2023 and plans for up to eight vessels by the late 2020s.
- Expansion of volunteer forces: Efforts to grow the reserve and volunteer military, including extended conscription periods introduced in 2024, aim to build a more robust defense network.
- Missile and drone capabilities: Increased production of anti-ship missiles like the Hsiung Feng series and acquisition of loitering munitions, such as the Altius systems recently delivered by U.S. firm Anduril Industries.
- Cyber and electronic warfare: Investments in systems like the "Xuan Ji" electronic warfare pods, which completed successful flight tests on C-130H aircraft in 2025.
- Coast Guard enhancements: Funding for new patrol vessels and equipment to handle gray-zone tactics employed by Chinese maritime militia.
These initiatives are part of Taiwan's "porcupine strategy," designed to make any invasion prohibitively costly for China. The budget also supports joint exercises with allies, including the U.S., Japan, and Australia, under frameworks like the Quadrilateral Security Dialogue.
Challenges and legislative hurdles
Despite the ambitious plan, the budget must pass through Taiwan's Legislative Yuan, where opposition parties like the Kuomintang (KMT) have historically scrutinized and sometimes reduced defense allocations. In past sessions, lawmakers have frozen funds over concerns about procurement transparency or shifted priorities toward social welfare. Analysts predict debates will focus on the inclusion of Coast Guard spending, with some viewing it as an accounting maneuver to meet the 3% target without proportional increases in core military hardware.
Economic factors add complexity. Taiwan's GDP growth is projected at around 3.5% for 2026, driven by its semiconductor industry led by companies like TSMC. However, global supply chain disruptions and energy costs could strain fiscal resources. The overall government expenditure for 2026 is budgeted at over NT$3 trillion, a 3.8% rise, balancing defense with infrastructure and social programs.
International observers, including the U.S. Congressional Research Service, have urged Taiwan to sustain this momentum. A July 2025 report noted that while Taiwan's 2024 spending was 2.5% of GDP, reaching 3% aligns with NATO's minimum guideline, potentially strengthening U.S.-Taiwan ties under the Taiwan Relations Act.
Implications for regional stability
This budget increase could reshape Indo-Pacific dynamics. It may encourage other U.S. allies, such as Japan and South Korea, to ramp up their own defenses - Japan aims for 2% of GDP by 2027. For China, it represents a challenge to its reunification ambitions, possibly prompting further PLA posturing.
Experts warn that without continued U.S. support, including expedited arms sales, Taiwan's preparations alone may not suffice. As Deputy Foreign Minister Francois Wu stated in August 2025, "Taiwan alone, facing China - we will never be ready." The coming months will test whether this financial commitment translates into tangible security gains amid an increasingly volatile geopolitical landscape.
