Calls for Taiwan to allocate 5 percent or even 10 percent of its GDP to defense – popularized by figures like the former and future U.S. president, Donald Trump – have gained traction in the face of an increasingly assertive China. Trump, citing the inevitability of an attack by China, proposed that Taiwan’s defense spending reach 10 percent of GDP, which is three times the U.S. defense spending rate. Prominent voices such as Elbridge Colby and Robert O’Brien, Trump’s former national security adviser, have similarly advocated for sharp increases in Taiwan’s defense budget, with suggestions ranging from 5 percent to 10 percent of GDP.
However, while these proposals might appear straightforward, they risk oversimplifying Taiwan’s security challenges. Calls for defense spending hikes are counterproductive without addressing the deeper structural issues inherent in Taiwan’s defense strategy and fiscal policy.
While more than half of the NATO countries do not meet the baseline goal for defense spending – at least 2 percent of GDP – Taiwan does: Its approved defense budget for 2025, set at NT$647 billion (US$20.24 billion), represents 2.45 percent of GDP. Critics argue this allocation is insufficient. Yet, Taiwan’s limited government spending is a critical constraint on its ability to drastically increase defense expenditures.
Taiwan’s total government spending accounts for only 13.70 percent of GDP, far below the averages of OECD nations, where government expenditure typically approaches 50 percent of GDP. Israel is often cited as a model for Taiwan, but its government spending consistently ranged from 36 percent to 44 percent of GDP between 2018 and 2024, significantly higher than Taiwan’s 13.70 percent. This disparity underscores Taiwan’s fiscal limitations in adopting a similar defense strategy.
Taiwan’s declining government spending highlights structural fiscal weaknesses that must be addressed before considering significant defense budget increases. An increase in defense spending to 5 percent of GDP would consume nearly half of Taiwan’s already modest government budget, creating significant trade-offs in critical areas such as education, welfare, and public infrastructure. These trade-offs could also quickly become targets of information manipulation, further discrediting the United States and Taiwan’s effort to defend itself.
This lack of government funding is exacerbated by Taiwan’s tax revenue-to-GDP ratio, which remains significantly lower than other advanced economies. Political resistance to raising taxes has constrained Taiwan’s fiscal resources. Taiwan’s two major parties have consistently avoided fiscal reforms, particularly tax increases, due to fears of alienating voters – a dynamic that perpetuates the government’s limited fiscal capacity. Without addressing this structural imbalance, calls for a dramatic increase in defense spending risk undermining public support and fueling polarization in Taiwan.
On the other hand, fiscal reforms, including progressive tax policies, increased contributions from the tech sector, and adjustments to undervalued housing taxes, are necessary to finance Taiwan’s defense. Expanding Taiwan’s fiscal base would allow the government to pursue a sustainable defense strategy without compromising other priorities.
These fiscal constraints are compounded by Taiwan’s evolving security landscape, where China’s shifting military tactics demand a recalibration of defense priorities. The People’s Liberation Army (PLA) has increasingly pivoted from developing capabilities for traditional joint amphibious operations to emphasizing joint airborne assaults and special operations. Under the cover of air superiority, PLA forces could use helicopters and transport aircraft to bypass Taiwan’s coastal defenses and target critical military and governmental infrastructure deep inland. This shift would force Taiwan into urban defense operations much earlier than the Taiwanese military originally anticipated, exposing critical gaps in its preparedness for such scenarios.
Taiwan must address this gap by transitioning toward a decentralized defense strategy beyond its original imagined scenario of coastal defense, instead emphasizing asymmetric warfare and resilience. High-profile platforms such as M1 Abrams tanks and the Indigenous Defense Submarine (and, rumor has it, now the F-35) are very costly while also of questionable effectiveness in countering the PLA’s evolving tactics. Instead, Taiwan should invest in capabilities that leverage its geographic and strategic advantages, drawing lessons from Ukraine, which has successfully implemented innovative and decentralized defense measures. Prioritizing smaller, more survivable, and cost-effective systems would better position Taiwan to counteract China’s evolving incursions while conserving its limited resources.
Strengthening Taiwan’s defense requires not only strategic adjustments but also public support for defense policies. This support is essential to building public trust and ensuring consistent strategic planning. A 2024 poll by the National Defense and Security Research Institute revealed nuanced public attitudes toward defense spending. While 49.1 percent of respondents supported reallocating funds from other sectors, such as education and welfare, to bolster defense, 43.8 percent opposed the idea. Similarly, 48.7 percent favored raising taxes for defense, while 45.8 percent were against it. These figures demonstrate that public support for increased defense spending is attainable but requires communication and robust justification from political leaders.
To address this, effective strategic communication is crucial, not only to draw support from the general public and close the awareness gap, but also to foster societal resilience and prepare broader Taiwanese citizens for the potential disruptions associated with strengthening national defense. The Taiwanese government should spend more resources on communicating the topic of defense in an effective and creative way, which could also engage civilian populations in resilience planning – approaches that Taiwan could adapt to its unique geographic and strategic realities.
Taiwan’s defense challenges cannot be resolved through arbitrary spending targets alone. U.S. policymakers, including the incoming leadership, should move beyond focusing solely on defense spending metrics and instead encourage Taiwan to develop a comprehensive framework for reforming its defense. This approach should prioritize fiscal reforms, decentralized defense strategies, and efforts to communicate the need for defense tailored to Taiwan’s general public.
By adopting this holistic strategy, U.S. policymakers and Taiwan can align their objectives, fostering more vital collaboration and building a shared foundation to address China’s growing threats effectively.