Written by Domingo I-Kwei Yang and Chan-Hsi Wang.
Image credit: provided by the author.
Taiwan’s Legislature has repeatedly stalled the Lai administration’s NT$1.25 trillion (US$39.8 billion) defence budget, turning procedural tactics into political leverage at a moment of rising Chinese coercion. Yet beyond the partisan fight lies a more important shift: defence spending is no longer viewed simply as a cost. It has become a test of whether Taiwan can align its security needs with a broader strategy of economic resilience and industrial upgrading.
The opposition has seized on the budget proposal to demand a presidential questioning session, fuller disclosure of procurement plans, and debate over social-spending trade-offs and U.S. delivery timelines—even though more than 60 per cent of the public opposes efforts to block the bill, and more than 51 per cent support increasing the defence budget even if it requires additional taxes.
Despite the political theatre, a January 22 seminar hosted by Taiwan’s Institute for National Defence and Security Research (INDSR) —featuring American Institute in Taiwan (AIT) Director Raymond Greene and leading experts on economics and defence procurement—underscored a broader shift in how Taiwanese society assesses defence spending.
From Fiscal Burden to Strategic Investment
Several speakers at the seminar—including Huang Chung-che, Liu Meng-chun, Wang Shinn-Shyr and Raymond H.J. Huang—argued that Taiwan’s defence debate has shifted decisively. Defence spending is no longer cast as a fiscal burden but increasingly framed as a strategic investment, with the classic crowding-out thesis outweighed by positive economic spillovers such as demand stimulation, dual-use technological innovation, and industrial-base strengthening. Moving beyond the old “guns vs. butter” dichotomy, they contend that higher defence outlays help preserve Taiwan’s currency value and economic premium while bolstering long-term economic development.
President Lai Ching-te has reinforced this reframing. In unveiling the supplementary defence budget, he described it as “the largest sustained military investment in Taiwan’s modern history.” He later told the 2026 Commonwealth Economy Forum that the special defence budget is as much about economic security as military strength. This marks a clear break from earlier narratives focused narrowly on security trade-offs, positioning defence expenditure instead as a complement to—rather than a competitor with—Taiwan’s economic development agenda.
This economic-security framing is now shaping concrete industrial policy. Taiwan’s Minister of Economic Affairs, Kung Ming-hsin, has identified five priority dual-use sectors—aerospace, naval shipbuilding, unmanned systems, robotics, and satellites—and highlighted Taiwan’s 100,000-drone procurement plan, new foreign contracts with Skydio and Parrot, and the rise of a 260-company drone alliance as evidence of rapid industrial expansion. Kung’s message is clear: defence-linked industries are becoming a key pathway for integrating Taiwan’s broader economy into global supply chains.
From Buyer to Co-Production Partner
AIT Director Raymond Greene’s remarks at the INDSR seminar underscored a structural shift in U.S.–Taiwan defence cooperation: Taipei is no longer simply a buyer of American arms, but an emerging co-production partner in a dual-use defence industrial ecosystem. Greene emphasised that current initiatives, ranging from technology transfer to domestic manufacturing and integrated supply chains, are transforming Taiwan into an indispensable node in trusted global defence networks. These partnerships, he noted, not only strengthen Taiwan’s self-defence capacity but also expand its industrial base, generate high-value jobs, and position the island as a future powerhouse in the wider democratic defence supply chain.
U.S. defence firms are steadily weaving Taiwan into their production lines. Anduril now sources critical UAS components from Taiwanese suppliers, while Shield AI’s partnership with Aerospace Industrial Development Corporation (AIDC) seeks to build a full-spectrum UAV ecosystem on the island. Northrop Grumman has established a medium-calibre ammunition test range in Taiwan, enabling the Ministry of National Defence to certify domestically produced rounds to global standards. This step sets the conditions for eventual co-production of 30mm Bushmaster ammunition. Meanwhile, cooperation on the Integrated Battle Command System (IBCS) aims to fuse Taiwan’s disparate radar and missile platforms into a unified air-defence architecture, deepening interoperability and accelerating Taiwan’s integration into a broader U.S.-aligned defence industrial and operational network.
Taken together, these developments mark a decisive pivot: Taiwan’s role has evolved from purchasing U.S. systems to helping produce them. Its integration into unmanned systems, munitions testing, and networked air-defence architectures underscores how the island has become an increasingly indispensable node in Washington’s efforts to build resilient, multi-national defence supply chains.
Peace Through Strength as an Economic Strategy
President Lai Ching-te has repeatedly invoked “Peace Through Strength” as the anchor of Taiwan’s defence strategy. This approach aligns with Washington’s deterrence posture and underscores Taipei’s determination to defend its way of life. The phrase is not rhetoric; it reflects a policy framework that fuses military readiness with an economic agenda. Defence investment is treated as a catalyst for industrial upgrading, technological innovation, and long-term prosperity, positioning defence-industrial capacity as inseparable from national economic strength.
Taiwan’s whole-of-society defence resilience initiative embodies this dual economic–security logic. Its resilience architecture depends on dual-use technologies—from cybersecurity and unmanned systems to communications, logistics, medical supplies, and disaster management—creating powerful spillovers into civilian innovation. At the same time, bolstering societal redundancy and rapid-repair capacity protects the economic lifelines that sustain Taiwan’s global competitiveness. In this model, resilience is not merely a defensive posture; it is an engine for economic and strategic endurance.
Just as importantly, Taipei now sees the dual use defence sector as a vehicle for economic diversification beyond semiconductors. Taiwan’s specialised manufacturing firms—including Hocheng Corporation, Gloria Material Technology, Transcom, Getac, and ChenFull Precision—are emerging as critical enablers in democratic defence supply chains. From precision multi-axis machining and advanced bulletproof ceramics to aerospace-grade superalloys, military-grade microwave semiconductor components, and ruggedised computing platforms, these backbone enterprises underpin Taiwan’s emerging economic deterrence. Leveraging decades of precision manufacturing, advanced materials processing, and system-integration expertise, they are positioning themselves as indispensable partners for U.S. and allied defence industrial bases.
The Emerging Trend
Taiwan’s debate over defence spending is entering a new phase—one that elevates the economic logic behind defence investment. INDSR’s recent seminar captured this change. Even as partisan clashes in the Legislature continue, driven by tactical calculations ahead of local elections, a broader consensus is emerging: the alignment of defence capability, industrial capacity, technological innovation, and economic growth is becoming a defining—and increasingly irreversible—feature of Taiwan’s strategic trajectory.
Dr Domingo I-Kwei Yang is an assistant research fellow at the Institute of National Defence and Security Research (INDSR) and an adjunct assistant professor in the Department of Diplomacy at National Chengchi University (NCCU). He is a frequent commentator on China’s influence in the Global South and U.S.-China competition. He has delivered expert briefings at Taiwan’s Ministry of Foreign Affairs (MOFA), NATO Headquarters, and numerous international security dialogues. His expertise includes international relations, China’s Belt and Road Initiative, China’s relations with the Global South—particularly China-Africa relations and investments in the South Pacific—as well as the intersection of technology and geopolitics. His current research focuses on China’s dual-use infrastructure projects in the Global South and its grey zone aggression.
Dr Wang Chanhsi is an associate research fellow at the Division of National Security Research of the Institute of National Defence and Security Research(INDSR). Dr Wang received his PhD from the Institute of East Asian Studies at National Chengchi University. His research areas include contemporary Chinese politics and society, cross-strait relations, non-traditional security issues and national security policy analysis. Dr Wang also pays attention to new security threat issues such as cognitive warfare, health governance, and economic coercion.
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