Taiwan Announced a Record Defense Budget: But Is It Enough to Deter China?

Last week, Taiwan announced plans to increase its total defense spending to a record NT$606.8 billion (US$19.1 billion), equivalent to 2.6 percent of GDP. While this might seem like good news, the reality is that this represents only a 3.5 percent 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 important, 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 defense spending should be accelerating to confront the growing threat that Taiwan 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, Tsai 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. 

These substantial increases to Taiwan’s defense budget and a heightened focus on improving its 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 Taiwan 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 unification to the “rejuvenation of the Chinese nation,” which he has stated must be achieved by 2049. Xi’s report to the Twentieth 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 his March 2023 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, and preparing for a war in the Taiwan Strait has been the People’s Liberation Army’s (PLA) top priority. CIA Director William Burns has noted 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 $224 billion, nearly 12 times Taiwan’s defense spending. China 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, and 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, 71 submarines to Taiwan’s 2 (although Taiwan has an additional 2 World War II–era submarines, they are only used for training), 45 frigates to Taiwan’s 22, and 36 destroyers to Taiwan’s 4. 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 Taiwan cannot be expected to match China’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 percent of GDP, outpaces many NATO allies such as the United Kingdom, France, Italy, and Germany. At the same time, however, Taiwan’s defense spending is not commensurate with countries that face similar existential threats such as Israel, whose 2022 defense spending totaled 4.5 percent of GDP. The United States, by comparison, spends 3.5 percent of GDP on defense, and during the Cold War routinely spent between 5 to 10 percent of GDP. 

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 Taiwan 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 percent (in both 2001 and 2019, for instance, Taiwan allocated 11 percent of its government budget to defense). Taiwan will need to make difficult tradeoffs in the years ahead and will need to prioritize defense spending over other areas. 

Over the past seven years, Taiwan has made substantial progress in digging itself out of the hole it put itself in due to years of stagnant defense 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.