Taiwan is preparing one of its largest defense expansions in decades, with President Lai Ching-te announcing plans for an additional US$40 billion over the coming years. The move underscores Taipei’s growing sense of urgency as China intensifies military pressure, while the United States and regional partners deepen strategic coordination across the Indo-Pacific.
A Historic Defense Investment Amid Mounting Threats
On November 26, 2025, President Lai unveiled the supplementary defense budget of 1.25 trillion Taiwanese dollars (approximately $40 billion) to be allocated over eight years from 2026 to 2033. The announcement represents an unprecedented commitment to bolster Taiwan’s deterrence capabilities against what Lai described as China’s accelerating military preparations.
In his statement, Lai emphasized that China has continued to increase military drills and so-called “gray-zone harassment” around Taiwan, with the goal of seizing the island by force by 2027. The president also warned of Beijing’s intensified infiltration and influence campaigns designed to undermine Taiwan’s democracy and sway public opinion.
The supplementary budget will not only fund significant new arms acquisitions from the United States but also vastly enhance Taiwan’s asymmetrical capabilities. This dual approach reflects Taiwan’s strategy of combining conventional military strength with cost-effective asymmetric warfare tools designed to impose maximum costs on any potential aggressor.
The timing is particularly significant. Shortly after Lai’s speech, Raymond Greene, director of the American Institute in Taiwan, welcomed the special defense budget and expressed support for Taiwan’s rapid acquisition of critical asymmetric capabilities needed to strengthen deterrence.
Escalating Military Pressure from Beijing
The defense expansion comes against a backdrop of dramatically increased Chinese military activity around Taiwan. In 2024, PLA aircraft conducted 3,615 flights into Taiwan’s Air Defense Identification Zone (ADIZ), more than double the 1,669 recorded in 2023. This escalation continued into 2025, with 3,056 PLA incursions into Taiwan’s ADIZ recorded through October 10, 2025, representing a 33 percent increase from the same period in 2024.
These incursions are not merely symbolic. Recent exercises like “Strait Thunder-2025A” in April demonstrated PLA operations focused on simulating attacks against Taiwanese energy infrastructure and ports, particularly LNG terminals, and encroached further into Taiwanese territory than previous exercises. The scale and sophistication of these drills suggest China is actively rehearsing blockade and invasion scenarios.
Perhaps most concerning, a November 2025 report from the US Senate’s China Economic and Security Review Commission warned that the PLA could implement a blockade within “a matter of hours” and need only “minimal conversion time” prior to an attack on Taiwan. The report emphasized that large-scale, unannounced exercises are designed to normalize military activity near Taiwan, making it more difficult to detect if China is preparing for an actual operation.
China’s response to Taiwan’s defense announcement was predictably hostile. A Chinese foreign ministry spokesperson stated that “the Democratic Progressive Party’s plan of resisting reunification and seeking independence using armed forces is doomed to fail”.
Breaking Down the $40 Billion Defense Plan
Taiwan’s defense spending trajectory shows the magnitude of this commitment. In 2024, Taiwan spent roughly 2.5 percent of its GDP on defense. Under the new plan, defense expenditure will increase to 3.3 percent of GDP in 2026, then rise further to 5 percent by 2030.
The supplementary budget prioritizes several key capabilities:
Advanced Air Defense Systems: A centerpiece is the “Taiwan Dome,” an air defense system with high-level detection and interception capabilities, designed to provide layered protection against missile and air threats.
Precision Strike and Asymmetric Capabilities: Defense Minister Wellington Koo indicated the $40 billion upper limit will be used to buy precision-strike missiles and toward joint development and procurement between Taiwan and the United States. This includes long-range missiles, drones, and coastal defense systems that can threaten Chinese forces at distance.
Military Investment and Procurement: For the fiscal year 2026, spending on military investment will increase by 16.76 percent to reach NT$161.6 billion, largely due to payments for arms purchased from the United States.
This approach reflects lessons from Ukraine’s defense against Russia: smaller nations can impose substantial costs on larger adversaries through asymmetric warfare, making invasion calculations more complex and uncertain for potential aggressors.
Deepening U.S.-Taiwan Security Cooperation
American support remains crucial to Taiwan’s defense modernization. From 2015 to 2025, the executive branch notified Congress of more than $28 billion in Foreign Military Sales to Taiwan. Recent packages demonstrate sustained U.S. commitment.
In October 2024, the United States approved $2 billion in arms sales including three National Advanced Surface-to-Air Missile Systems (NASAMS) valued at up to $1.16 billion and radar systems worth an estimated $828 million. In November 2024, another $385 million package was approved for spare parts for fighter jets and radar systems, with deliveries expected to begin in 2025.
The Trump administration’s approach adds complexity to this relationship. While demanding Taiwan increase defense spending—at times suggesting it should reach 10 percent of GDP—Washington has also maintained robust arms sales. New mechanisms like Presidential Drawdown Authority have provided $1.5 billion in defense articles directly from U.S. Department of Defense stocks, addressing concerns about long delivery timelines.
However, challenges remain. As of February 2025, the backlog of announced but undelivered U.S. arms sales to Taiwan stood at $21.54 billion, highlighting procurement and delivery bottlenecks that need resolution.
Regional and Global Implications
Taiwan’s defense buildup resonates across the Indo-Pacific. Japan has become increasingly vocal about Taiwan security, with Prime Minister Sanae Takaichi suggesting in November 2025 that a military attack on Taiwan could present a “survival-threatening situation” for Japan. This triggered diplomatic tensions with Beijing, including China suspending Japanese seafood imports and advising its nationals against travel to Japan.
Australia and the Philippines, both facing their own challenges with Chinese assertiveness in regional waters, view Taiwan’s resilience as integral to broader Indo-Pacific stability. The defense spending increase signals to these partners that Taiwan is serious about its own defense, potentially encouraging further regional security cooperation.
From a global perspective, Taiwan’s commitment addresses longstanding concerns that democratic nations must demonstrate resolve in defending themselves. The substantial investment also reflects awareness that deterrence requires credible capabilities—paper commitments alone will not dissuade aggression.
Economic Considerations and Constraints
Taiwan faces real fiscal constraints in this defense expansion. In March 2025, Premier Cho Jung-tai stated it was “impossible” for the government to allocate more than NT$2 trillion for defense spending given Taiwan’s current central government budget scale of nearly NT$3 trillion, with social welfare already comprising the largest expenditure category.
Critics have warned that spending on social welfare and other services may suffer since Taiwan has been running a deficit, which has to be financed by borrowing. However, Taiwan’s fiscal position remains manageable, and the island’s status as a high-tech manufacturing powerhouse—particularly in semiconductors—provides economic capacity others lack.
The defense industry implications are significant. Taiwan is pursuing indigenous defense production to complement foreign purchases, which could strengthen its defense industrial base and reduce dependency on external suppliers whose deliveries can be delayed by geopolitical factors or production constraints.
For regional markets, Taiwan’s massive defense commitment underscores the geopolitical risk premium investors must consider. Any military conflict in the Taiwan Strait would devastate global semiconductor supply chains, affecting everything from smartphones to automobiles to advanced weapons systems.
Domestic Political Debates
Taiwan’s opposition-controlled legislature presents challenges to implementing this budget. Earlier in 2025, the KMT-TPP alliance made unprecedented cuts to the government’s budget proposals, including freezing half the funding for Taiwan’s domestic submarine program. While defense spending received relatively fewer cuts than other areas, the new $40 billion supplementary budget will face intense scrutiny.
Opposition concerns center on fiscal sustainability, opportunity costs for social programs, and questions about whether such large expenditures will genuinely enhance security or merely provoke Beijing further. Some analysts argue that no amount of military spending can overcome China’s quantitative advantages, and that diplomatic engagement should take precedence.
However, public opinion appears supportive of stronger defense. The Ukrainian experience—where inadequate preparation proved costly when invasion materialized—has resonated with Taiwanese citizens who increasingly view robust defense capabilities as essential insurance against worst-case scenarios.
Looking Ahead: Critical Junctures
Several factors will determine the success of Taiwan’s defense expansion:
Legislative Approval: The supplementary budget must navigate Taiwan’s divided legislature. While defense typically enjoys bipartisan support, the scale of this investment ensures vigorous debate over implementation details and timeline.
Procurement and Delivery: Translating budget allocations into operational capabilities requires overcoming the existing $21.54 billion backlog and accelerating delivery schedules. Recent progress on drone systems and HIMARS provides encouraging precedents, but much larger conventional weapons platforms face longer timelines.
Beijing’s Response: China will likely escalate gray-zone operations and diplomatic pressure to signal displeasure with Taiwan’s defense buildup. More concerning would be if Beijing interprets the investment as evidence that windows of opportunity are closing, potentially accelerating rather than deterring aggressive action.
Regional Coordination: Taiwan’s defense ultimately depends on credible U.S. commitment and regional partners’ willingness to support stability. The defense budget announcement provides an opportunity to strengthen these partnerships through enhanced interoperability and joint planning.
Technological Innovation: Taiwan’s emphasis on asymmetric capabilities—drones, coastal defense missiles, cyber capabilities—positions it to leverage technological advantages. Success depends on rapid innovation cycles and effective integration of new systems.
Conclusion
Taiwan’s $40 billion defense investment represents a watershed moment in Indo-Pacific security dynamics. It demonstrates Taiwan’s determination to defend its democracy while acknowledging the sobering reality of China’s military buildup and increasingly assertive posture.
For the international community, Taiwan’s commitment challenges assumptions about burden-sharing in collective defense. If a small democracy can allocate 5 percent of GDP to security, it raises questions about what larger, wealthier nations should contribute to deterring aggression and maintaining rules-based order.
The coming years will test whether this historic investment translates into credible deterrence. Success requires not just money, but effective procurement, rapid capability development, and sustained political will in both Taipei and Washington. The stakes—for 24 million Taiwanese, for regional stability, and for the global economy—could hardly be higher.
As tensions continue to rise in the Taiwan Strait, this $40 billion bet on deterrence may prove to be one of the most consequential defense policy decisions of the 2020s.
