Taiwanese President Proposes New Investment in Island’s Defense Amidst Rising Regional Tensions

In response to Beijing’s belligerence, Taiwan is planning to invest in its own security. On November 26, Taiwanese President Lai Ching-te announced a proposed special budget of $40 billion to strengthen the island’s defenses and further U.S.-Taiwanese defense cooperation, though the measure has currently stalled in the country’s legislature.

The proposed increase, on top of Taipei’s previously planned hike in overall defense spending, highlights Taiwan’s commitment to its security amidst a period of rising regional tensions.

Supplemental Budget Would Focus on Unmanned Systems, Air Defense Network

The budget supplement, which would add up to $40 billion over the next eight years, will primarily focus on purchasing long-range strike capabilities and unmanned sea-based systems, developing the “Taiwan Dome,” a layered air and missile defense system similar to Israel’s “Iron Dome,” and strengthening Taiwan’s domestic defense-industrial base. The spending will also focus on joint U.S.-Taiwanese production and procurement opportunities, similar to deals with South Korea and Australia on shipbuilding and other advanced defense technologies.

The proposed expenditure would offer a major increase to Taipei’s overall defense budget, which is projected to reach $31.2 billion, or 3.3 percent of the island’s gross domestic product by 2026. Lai previously announced plans to increase defense spending to 5 percent of GDP within the next decade. This would be consistent with NATO members’ commitment in June to spend 5 percent of GDP on defense by 2035, although Taiwan’s current spending stands far higher than the average NATO member state, which spends roughly 2.2 percent of GDP.

Taiwan’s Spending Remains Tied to the U.S. Defense Industrial Base

The proposed increase comes as China has dramatically increased the scale of its military exercises around the island, including conducting its largest exercise in three decades in December 2024. This increase has been paired with Beijing’s growing capacity to project power within the region, including toward key bases likely to be used by U.S. and allied forces in the event of a crisis. Those under threat include bases in the northern Philippines and southern Japan. Along with accelerating its military build-up, China has worked to diplomatically isolate Taiwan, recently lashing out at Tokyo over its stated willingness to support Taipei and deploy its military in self-defense.

While Taiwan is allocating the money needed for an effective defense, the acquisition of actual hardware will depend on American producers. While Taiwan has invested in its own defense manufacturing, a significant portion of Taipei’s purchases are from U.S. companies — effectively ensuring that any American slowdown in production or approvals limits the island’s ability to defend itself. This process also affects future spending, as Taiwan’s efforts to increase defense procurement rely on receiving American weapons systems already suffering from significant delays, such as F-16 Block 70/72s, or providing components to current American systems, such as Abrams tanks.

Washington Must Reform Its Foreign Military Sales Program

Taiwan’s proposed increase in defense spending will provide significant dividends so long as Taipei’s main supplier, the United States, can pair its financial support under the Taiwan Security Cooperation Initiative with a clear path to fulfill orders within a reasonable timeframe. In rolling out proposed changes to streamline Washington’s Foreign Military Sales process, Defense Secretary Pete Hegseth should ensure that Taipei remains near the front of the line in procuring weapons. In parallel, Congress, the Department of Defense, and the State Department should encourage Taiwanese firms to collaborate with American peers to pursue joint procurement and production, easing supply-chain bottlenecks and logistical concerns.

Moreover, Taiwan should also increase spending on related defense needs, particularly on capabilities that could counter a Chinese shadow quarantine. To protect supplies of strategic resources such as energy, new liquid natural gas tankers and more LNG storage units are necessary.

Jack Burnham is a senior research analyst in the China Program at the Foundation for Defense of Democracies (FDD). For more analysis from Jack and FDD, please subscribe HERE. Follow Jack on X @JackBurnham802. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.