Written by Guido Gargiulo
Image credit: Primary source photo from Reuters and provided by original author Thompson Chau from Nikkei Asia.
President Lai Ching-te (賴清德) has made it clear: if China moves to annex Taiwan, Japan and the Philippines would face threats next. This warning, delivered in a recent AFP interview, underscores the high stakes in the Taiwan Strait. As Beijing intensifies military drills and economic pressures, Taipei is pushing hard on multiple fronts—bolstering defences, locking in US trade deals, and urging Europe to step up. The current geopolitical moment feels precarious, complicated by Trump’s weighing a visit to Beijing amid stalled arms sales and fresh tariffs reshaping global flows. Taiwan’s leaders know they must blend deterrence with diplomacy to hold the line.
Taiwan’s leadership gets this urgency. Lai, who took office as president in May 2024, has framed security and prosperity as inseparable. His administration recently announced an extra NTD 1.25 trillion (about US$39 billion) in defence spending over eight years, targeting a multi-layered air defence system dubbed the “T-Dome”.
Analysts, including Domingo Yang and Chan-Hsi Wang, argue that higher defence spending sparks industrial growth, from drone production to advanced materials, turning defence into an engine for jobs and tech breakthroughs. And there’s real public backing: 60 per cent support the spending increase, even with tax hikes.
Tightening ties with the Trump administration
The US remains Taiwan’s bedrock ally, but Trump’s return adds layers of unpredictability. Early in 2026, Washington and Taipei inked a pivotal trade pact that slashed tariffs on Taiwanese goods from 20 per cent to 15 per cent—the same as those on South Korean and Japanese goods. In exchange, Taiwan committed to purchasing US$85 billion in American energy, aircraft, and defence equipment over the coming years. This deal initially cushioned Taiwan against Trump’s broader tariff blitz, which hit global trade hard following his “Liberation Day” announcement in April 2025.
Recently, however, a US court ruled that Trump had overstepped his powers, temporarily halting those tariffs. Not one to accept defeat, the president quickly imposed a new 10 per cent levy on all imports worldwide. The Kuomintang (KMT) opposition capitalised on this shift, pushing Lai’s government to renegotiate the trade pact immediately to secure better terms for Taiwan’s exporters, now that the original tariff framework is uncertain. It’s a calculated political move, signalling that the opposition would not accept the current terms without revision.
Beyond trade tensions, defence cooperation presents its own challenges. On the one hand, joint work on integrated battle command systems and drone alliances with firms such as Anduril and Shield AI shows genuine strategic depth. Yet a critical obstacle has emerged: a major arms package remains frozen. Trump’s team fears approval could derail his planned April trip to Beijing, where Xi Jinping recently urged restraint on Taiwan arms sales. Chinese pressure is tilting Beijing officials, stalling deliveries of key systems amid delays already plaguing earlier deals.
Trump’s approach blends pressure with pragmatism. He’s pushed Taiwan to increase defence spending above 3 per cent of GDP—the first time since 2009—while suggesting Taiwan bear a larger share of the bill for US protection. Lai’s team navigates this by accelerating purchases and deepening co-production partnerships, positioning Taiwan as a vital node in America’s defence supply chains. The economic logic shines through these moves to safeguard Taiwan’s semiconductor dominance, which powers roughly half of the world’s advanced chips.
Europe’s tug-of-war: Vilnius lessons and EU opportunities
Europe presents a trickier puzzle. China has been pressuring EU states to block visas for Taiwanese officials, calling such visits “red line” violations. Beijing demands that EU states deny entry to figures like President Lai or former officials, framing Taiwan passports as invalid. This echoes the Vilnius saga: when Lithuania hosted a Taiwanese “representative office” in 2021, Beijing responded with trade bans and diplomatic expulsions. Fast-forward to 2026, and Lithuanian new PM Inga Ruginiene acknowledged the move lacked sufficient international support, leading Vilnius to recalibrate its China strategy. Taiwan watches this retreat carefully. Lai’s government wants deeper EU defence ties—jointly developing drones, satellites, and cyber capabilities. Taiwan has even earmarked special defence funds, in part to finance such collaborations, eyeing Europe’s expertise in aerospace and robotics. Yet EU caution prevails, wary of provoking Beijing and jeopardising access to the Chinese market. The bloc’s “de-risking” strategy leaves little room for outreach to Taiwan.
Lai has pitched Europe directly, stressing shared democratic values and mutual exposure to coercion. To demonstrate commitment, recent initiatives include trilateral supply chain talks with the US, which could involve Europe. The Vilnius fallout serves as a cautionary tale: bold moves require allies willing to stand firm. Taiwan urges Brussels to view it as a strategic frontline in the fight against grey-zone tactics, not merely a trade issue.
Diplomatic hustle and domestic resolve
Taiwan’s diplomats work overtime. Foreign Minister Lin Chia-lung (林佳龍) has crisscrossed international capitals, building unofficial networks despite the absence of formal diplomatic ties. Outreach to the EU Parliament and NATO circles underscores Taiwan’s comprehensive resilience—a whole-of-society model that blends civil defence preparations with technological innovation. Former President Tsai Ing-wen (蔡英文) set the pace through high-profile European tours in 2023, moves that angered Beijing while elevating Taiwan’s international standing. Vice President Hsiao Bi-khim (蕭美琴) has kept that momentum going with recent visits to Prague and Brussels, drawing large crowds and reinforcing the message of shared democratic interests in the face of coercion. At home, Premier Cho Jung-tai (卓榮泰) ties defence hikes to economic security, arguing they protect the semiconductor heartland that underpins global technology.
Meanwhile, President Lai keeps the message consistent: peace through strength. His “New Southbound Policy” expands ties with ASEAN and India, diluting China’s regional influence. Domestically, the special defence budget faces legislative pushback from opposition parties ahead of local elections, but polling shows broad public support for a stronger stance.
The path forward in a tense geopolitical equilibrium
Taiwan threads a narrow path. Trump’s transactional approach demands that Taiwan pay substantially and deliver results, while Europe wavers between democratic values and economic interests. China’s pressure mounts through military drills, visa restrictions, and economic nudges. Yet Taiwan’s multi-pronged strategy with increased defence spending, trade wins, and quiet diplomacy to buy time. The T-Dome system and co-production partnerships signal commitment; EU outreach tests whether solidarity holds.
How long can Taiwan sustain this balancing act before one side gives way? Taipei leaders gamble on semiconductor dominance and democratic grit to pull allies closer when it matters most. Every trade concession, every drone deal, every European handshake chips away at isolation. If President Lai’s vision holds, Taiwan won’t just survive the squeeze—it could reshape the geopolitical calculus. That possibility, and the risks if it fails, hang over 2026 more heavily than ever.
Guido Gargiulo is the Director of Osservatorio Esteri Taiwan (Taiwan Foreign Affairs Observatory) and a graduate of the University of Naples L’Orientale in Languages and Cultures of Europe and the Americas. He advanced his Chinese language studies at the Taiwan Mandarin Educational Centre and Confucius Institute. From Italy, he provides expert analysis on Taiwan’s strategic challenges, including Italy/EU-Taiwan relations, regional security, and Taipei’s defence strategies. He contributes regularly to L’Europeista, Taiwan News, and Geopolitica.info.
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