On August 21, Taiwan’s Democratic Progressive Party government announced plans to increase the 2026 defense budget to 3.32 percent of GDP. If passed, the budget would see Taiwan spend more than 3 percent of its GDP on defense for the first time since 2009. Although the proposal was made by the Cabinet, the 22.9 percent year-on-year increase in defense spending needs to be approved by the legislature, which is controlled by the opposition parties, the Kuomintang (KMT) and the smaller Taiwan People’s Party (TPP).
Earlier this year, the KMT-TPP alliance passed a budget that made unprecedented cuts to the government’s original version. While the defense portion of the 2025 budget received relatively fewer cuts, it was not spared; half of the funding for Taiwan’s domestic submarine program was frozen and other cuts impacted operational expenses (the procurement of ammunition, fuel, and spare parts for military equipment) and international military exchanges.
That said, the KMT is on record as being in favor of a defense spending hike. The party’s Department of International Affairs said in a statement in July, “The KMT fully supports increasing the defense budget to exceed 3% or even 3.5% of GDP.” If the budget request does become a topic of debate in the legislature, the issue is likely to be the spending priorities, rather than the topline number.
The requested budget increase comes as the United States’ Trump administration has been pressuring not only Taiwan but U.S. treaty allies like Japan and South Korea to significantly raise defense spending. U.S. officials have pressed Japan and South Korea to raise their defense budgets to 5 percent of GDP; Elbridge Colby, currently the under secretary for defense policy at the Pentagon, famously suggested during his confirmation hearing that Taiwan’s defense spending “should be more like 10 percent” of GDP.
In part, the budget increase is due to a new accounting method. The 2026 defense budget number includes spending on the Coast Guard Administration and military retirements that were not counted last year; using that old calculation method, then the defense budget is 2.84 percent of Taiwan’s GDP and the year-on-year increase is 20.1 percent. This calculation follows the “NATO model.”
Given that in any conflict with China the Taiwanese coast guard would be on the frontlines and support the navy, an anonymous Taiwanese official argued, “Facing new types of threat, including grey-zone tactics, it is necessary to include the coast guard in defense spending.”
Taiwan has also pledged to increase its defense spending to 5 percent of GDP by 2030, but it cannot hope to match China’s spending: Taiwan’s $31.27 billion is a fraction of China’s $248.17 billion.
Personnel costs remain the largest portion of Taiwan’s 2026 defense budget at NT$200.8 billion (US$6.5 billion), followed by operational upkeep (i.e., additional ammunition and spare parts) at NT$199 billion, military investment (i.e., arms purchased from the United States) at NT$161.6 billion, and unspecified additional arms purchase at NT$110 billion.
Military modernization is a priority for the current government. Taiwan is pursuing a variety of new hardware, including fighter jets, naval defenses like next-generation frigates, uncrewed surface vessels, made-in-Taiwan submarines, and drones and autonomous vehicles, including R&D collaboration with allies and like-minded countries.
Taiwan is also making efforts on the human side. The term of service for the mandatory conscription program was lengthened from four months to a year under former President Tsai Ing-wen. Current President Lai Ching-te is increasing pay and benefits for the military, making training more rigorous, renovating military camps and dormitories and increasing the salary of military personnel.
The Taiwanese military has also significantly revamped the annual Han Kuang exercise – simulating the response to an invasion of Taiwan – by doubling the length of the exercises to 10 days, making the exercises less scripted and more realistic (involving gray zone warfare, disinformation campaigns, urban warfare), and having a greater role for reservists and civil defense personnel. This year’s exercises in July called up the largest number of reservists – 22,000 – and deploying them in brigade-size elements. The government is also stepping up the frequency of civilian defense drills, like the Urban Resilience Exercise last July when every major urban area held air raid drills.
The defense budget, military modernization, and greater efforts to prepare the troops are reflect the pressure that Taiwan is feeling from China. As Lai puts it: “By preparing for war, we are avoiding war.”
But it is always difficult to convince people of such a dramatic threat, and according to a survey conducted in May by the military-affiliated Institute for National Defense and Strategic Research (INDSR), 65 percent of people in Taiwan believe it is unlikely that China will attack in the next five years. Such skepticism combined with Lai’s rhetoric is dividing Taiwanese society between those who believe China is an enemy – and thus that Lai’s strategy and tactics are justified – and those who do not.
It is important for Taiwanese to debate more than the budget numbers – there are other important questions to consider. How can Taiwan be integrated into a regional, multilateral security architecture, when it doesn’t have formal diplomatic relations with its major partners? What kinds of capabilities are best suited to dealing with China’s new capabilities, and how much should Taiwan invest in conventional capabilities versus asymmetric capabilities? How can Taiwan ensure its energy security?
And, of increasing importance today: How can Taiwan manage its relationship with the United States?
Taiwan’s announcement comes not only in the context of increasing Chinese pressure but concerns about U.S. commitments. Taiwan is in the middle of ongoing tariff negotiations with the United States after U.S. President Donald Trump imposed a 20 percent tariff on Taiwan’s imports. Meanwhile, Trump’s approach to the Russian invasion of Ukraine, including repeated suggestions that Ukraine should cede part of its territory to ensure peace, have raised doubts in Taiwan about the strength of the U.S. commitment to its defense.
A recent RAND study, which I co-authored, researched Taiwan’s response to the Nixon era, when the United States was pursuing rapprochement with China at the same time as it was retrenching from its alliance commitments. Taiwan’s circumstances today are vastly different than they were in the 1970s. Taiwan’s place on the international stage was less certain, having just left the United Nations in 1971, and Taiwan is now a vibrant multiparty democracy (among many other important differences).
But in the 1970s, Taiwan invested more resources in balancing against China, reined in its ambitions to retake the mainland, and remained responsive to U.S. policy preferences, even though it did diversify some of its military sourcing. So far, Taiwan’s response to U.S. retrenchment looks like it will be more of the same – but with an even more exclusive focus on self-defense and a few more options given the indigenous defense industry and strategic relationships it has invested in since then.