Written by Drake Long.
Image credit: US-Taiwan-European Next Generation Working Group.
In early June, I was sent to Taiwan as part of the University of California, Berkeley’s Next Generation Working Group, which brings together scholars from across the U.S. and Europe to better understand Taiwan and inform their research. For myself, I spent much of the trip with two vague goals in mind: listen to Taiwan’s civil society on how they think about Taiwan’s defence, and learn from Taiwan’s defence industry what they believe the current direction for their sector is.
The former was a bit of a mixed bag. There was a broad spectrum between the younger, energetic folks I met jumping into improvised trauma care classes and a dourer crowd eager to tell me about that time they saw a conscript’s foot get run over by an armoured personnel carrier.
However, the optimism within Taiwan’s business sector for defence production was what surprised me the most. Much of it comes from Europe’s appetite for new military supply chains and the enticing loophole nature of ‘dual-use’ goods.
Taiwan’s defence industries appear to be on the precipice of a major shift to an even more unique model. One that focuses predominantly on a foundry model for dual-use goods, or items that are just as applicable for military use as they are for everyday civilian usage.
The typical dual-use good cited in Taiwan, by virtually every Taiwanese businessperson, military enthusiast, and government official we met with, as having the most potential would be the commercial drone. In 2025, Poland nearly single-handedly drove a massive increase in drone exports from Taiwan abroad. Non-coincidentally, a variety of small Taiwanese VTOL (Vertical Take-off and Landing) drones were later spotted in use by the Ukrainian military. There are, as of now, over two hundred different drone companies in Taiwan, integrated into government efforts to promote more domestic production of drone components and reduce reliance on companies from the People’s Republic of China.
Taiwan’s determination to churn out defence articles without depending on external suppliers is not new. Previously, Taiwan’s domestic weapons development focused on autarky and self-reliance, employing highly diverse acquisition methods to identify and replicate components from abroad, as was the case in the early days of the Sky Bow surface-to-air missile (SAM) system. This approach works for at least initially building up a diversified, conventional military, but it has its drawbacks due to the need for secrecy when procuring components and blueprints for weapon systems. A top case study here is the Narwhal, whose components and construction expertise are sourced from many countries. It landed advisors from such countries as South Korea in dire legal trouble when this was leaked to the press.
But now, Taiwan is increasingly shifting to a foundry model for military systems. This would entail Taiwanese manufacturers being given the design for a weapon or tool from another company that, conceptually, owns the intellectual property (IP). The manufacturer would then produce, at mass scale, the component under the IP owner’s name.
Taiwan’s business sector is obviously familiar with the foundry model in another sense. It is the exact model that built Foxconn, TSMC, and UMC. It is not in doubt that Taiwan can build a niche as a dual-use manufacturing hub under this design; it would just be a highly unusual arrangement, and one that would allow for far greater co-production and cooperation on military goods with outside countries than Taiwan has had in over 30 years, all under the banner of ‘dual use.’
To kickstart this industry, Taipei is planning an injection of cash in the form of a special budget – a dedicated pool of funds for ordering drones en masse from domestic manufacturers. However, the state of that budget is currently fraught.
The initial special budget passed in a reduced form that stripped out virtually all funds that would facilitate mass production of drones and drone components, due to conflict between President William Lai’s administration and the legislature’s opposition parties. The remaining funds are now the subject of a separate special budget, debated heavily in the legislature. The main opposition party has proposed funnelling drone procurement funds through the regularly scheduled, annual budget that funds operations for the entire Taiwanese government. The problem is the viability of a robust industrial base for dual-use goods in Taiwan probably does depend on a special budget, no matter its final form, as it provides a longer-term pot of money that signals consistency to businesses and producers interested in entering the defence industry. Winnowing money through the annual budget guarantees it’ll be debated and possibly stalled each year, interrupting procurement plans by making them de facto limited to a year, at most.
Drone manufacturers on the island are generally enthusiastic about the prospects of scaling up production. However, all were of the same opinion that Taiwan’s drone industry cannot survive without one critical thing – access to at least one of the three largest markets in the world. Those are the United States, the People’s Republic of China, and the common market of the European Union.
The reason for this is simple. There is not enough appetite in Taiwan’s market alone for the number of drones the Taiwanese government wants private industry to produce. The ‘dual-use’ label, wherein something is useful for both military and civilian applications, is not a silver bullet for producing things at scale. It may seem like the ability to use production lines for both military goods (which go to an exclusive buyer and usually don’t earn the manufacturer much money) and civilian goods (which are bought by virtually anybody, and therefore the target audience for most goods of the kind Taiwan’s businesses regularly make) would benefit the former application disproportionately. But not every civilian wants or needs a drone. The consumer market for hobby drones is not very large, and the market for industrial applications – such as agriculture and logistics –is not much bigger.
A continent away, the European Union is pursuing a new defence supply chain policy that may make it the ideal target market. The EU is pursuing technological sovereignty, which assures certain technologies and dual-use goods can be produced in Europe without relying on threatening or unreliable external partners. This is the basis of the EU Tech Sovereignty series of bills and funding packages for European companies.
Taiwan is historically unable to engage with European countries on defence articles due to lack of diplomatic recognition and European sensitivity to PRC opinion. In Taipei, I was dismayed to see the EU’s de facto diplomatic presence has a mere 16 staff members, give or take a few. By comparison, the American Institute in Taiwan, its U.S. equivalent, has hundreds of people managing the relationship.
Is there a way for Taiwan to become the ideal partner for ‘dual-use’ goods to European governments and militaries regardless? There probably is, but it will be predicated on two requirements: (1) State-to-state agreements that ease Taiwan exports of dual-use goods, and (2) diversifying dual-use defence production in Taiwan beyond just drones.
Poland, a huge importer of Taiwanese drones, is not doing so solely out of market logic. The import-export relationship was built over a memorandum of understanding backed by the Polish government – exactly the kind of state intervention both Taiwan and any state in the European Union would need to do if they wanted to replicate that relationship. The special budget – or some enduring pot of money that signals to manufacturers consistent demand – is therefore key as well.
The second main issue, and one this author has observed in speaking with the private sector eager to get into defence in Taiwan, is that Taiwan cannot put all its eggs solely into the drone basket. For an enduring defence industrial base, the specific goods suitable for mass production must also allow for ‘spiral’ development into other uses. Taiwan’s robust missile force is largely because once Taiwan made one, it could iteratively design more and better variants of them using the same testing and manufacturing equipment. Drone investment would also need to incentivise the creation of testing centres and R&D centres that would eventually allow Taiwanese companies to capture some niche that competitors don’t fill.
Countries will not buy Taiwanese drones just because they are non-Chinese. The real selling point of something like the Revolver 860 is the servo-release mechanism that allows it to drop materiel reliably. An emphasis on these individual components of drones – which are applicable to other unmanned and manned systems as well – will thus be needed. Scaling these up – and aside from release mechanisms, reliable batteries, charging stations, legacy-node chips, and stabilisers are all other examples of dual-use components useful for a variety of military systems – and achieving some qualitative edge over competitors will be more necessary than mass exports of end-stage drones, in the long run.
Taiwan’s defence industry is in a unique position of welcoming in many different entrants as Taipei pushes for dual-use production. There is significant reward in this space, so long as the market logic is there and business forces are helped along by the kind of state-to-state cooperation Taiwan has already done. In some cases, subnational diplomacy may be more necessary. There is risk, too, in that it may not work out because of a lack of market access. That would cause many new entrants to wither on the vine.
Drake Long is a Senior Associate with the China Warfighting Initiative at the U.S. Marine Corps War College, as well as a member of UC-Berkeley’s U.S.-Taiwan-European Next Generation Working Group. He is currently a PhD student at King’s College London.
This article was published as part of the special issue on U.S.-Taiwan-European Next Generation Working Group.