Fresh Off Major Defense Drills, Taiwan Proposes Record Military Spending

Taiwan is doubling down on a double-digit increase in baseline defense spending.

On August 20, Taiwanese President Lai Ching-te proposed an 18 percent increase in baseline defense spending for the coming fiscal year, including significant new expenditures on weapons acquisitions alongside growing spending for ongoing operations. The announcement followed both the island’s annual Han Kuang military drills, which featured expanded urban warfare and maritime security exercises, and growing Chinese maritime coercion along the island’s eastern waters.

While the budget’s top-line numbers will likely shift under scrutiny from the opposition-controlled legislature, the proposal showcases Taipei’s expanded commitment to bolstering deterrence.

Major Baseline Spending Increase Will Complement Recent Special Budgets

The proposed budget will raise annual baseline defense spending above $1 trillion New Taiwanese Dollars ($31.4 billion USD) for the first time, ensuring that defense spending remains above 3 percent of the island’s GDP. The proposal also ensures that the growth rate of defense spending outpaces projected annual GDP growth for the year, which remains roughly 11 percent. While much of the new spending will be directed toward the Ministry of Defense for ongoing operations, roughly U.S. $7 billion will be used for financing weapons purchases while another U.S. $1.6 billion will be directed towards the Taiwanese Coast Guard, a key part of the island’s efforts to counter Chinese maritime coercion.  

The new proposal complements Taiwan’s earlier defense spending hikes. In May 2026, the Legislative Yuan passed a U.S. $24.5 billion supplemental budget to fund two arms packages from the United States. A month later, the Lai administration proposed another round of spending to acquire reconnaissance drones, loitering munitions, and unmanned maritime platforms to complement the island’s current defense capabilities and develop its domestic drone manufacturing sector.

Taiwan Reforms Annual Defense Exercises To Strengthen Resilience

The proposed spending increase follows Taipei’s efforts to strengthen its resilience against rising Chinese cross-strait coercion. These measures were largely displayed during the latest Han Kuang defense drills, which featured exercises showing more realistic urban combat, reforming logistical nodes under fire, and simulating disruptions to the island’s communications infrastructure. The drills also focused on joint navy-coast guard cooperation to counter a simulated maritime blockade of the island, a growing threat as China continues to expand its maritime presence in the island’s eastern waters to contest its access to the broader Pacific.

These measures complement Taiwan’s increased defense cooperation with the United States, including the reported establishment of a Joint Firepower Coordination Center in January 2026 to coordinate long-range precision strikes and share intelligence between the two militaries.

The expanded defense drills also correspond with Taiwan’s efforts to enhance its economic and societal resilience against non-military pressures. In March 2026, President Lai announced plans to restart two of the island’s shuttered nuclear reactors, expanding the grid’s baseload power while securing against possible disruptions to the island’s seaborne energy imports. Taiwan has also expanded its purchases of liquefied natural gas from the United States and Australia, diversifying its imports from vulnerable Gulf suppliers such as Qatar.

Washington and Taipei Should Work Together to Bolster Deterrence

Taiwan’s military spending plans, if passed into law, would represent a significant and timely investment in the island’s capacity to counter and deter Chinese coercion. Combined with its ongoing efforts to strengthen its societal resilience, Taipei is preparing to counter Beijing across the escalation ladder, from disrupting a maritime blockade to deterring a cross-strait invasion.

The United States and Taiwan should now combine their efforts to improve deterrence across this spectrum. This includes improving maritime security by pre-clearing secure shipping lanes to counter a Chinese quarantine attempt and enhancing interoperability through more rigorous joint exercises and accelerating weapons deliveries.

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 FDD on X @FDD. Follow Jack on X @JackBurnham802. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.