Taiwan's record $35 billion defense budget tests Trump's arms stance

Taiwan's first NT$1 trillion defense budget lands as Washington withholds a $14 billion arms package ahead of a Trump-Xi summit.

Taiwan proposed a record NT$1.12 trillion (US$35 billion) defense budget for 2027, an 18.2 percent increase that lifts military spending above 3 percent of gross domestic product for the first time, as Taipei strengthens deterrence against Beijing while seeking to unlock stalled U.S. arms sales.

"The ministry's plans include supplementary spending on drones and missiles, for which the government had previously been unable to get parliamentary approval," Hsieh Chi-hsien, who heads the defense ministry's comptroller bureau, told reporters Thursday.

The proposed allocation, approved by the cabinet Thursday, is NT$173 billion higher than this year's and accounts for 28.6 percent of the government's NT$3.93 trillion total expenditure. Military investment rises NT$97.5 billion to NT$259.1 billion, the largest share of the increase, with funds also covering veterans and the Coast Guard, which plays an auxiliary role to the navy. Defense spending would reach about 3.93 percent of 2025 GDP, up from 3.23 percent this year.

The budget carries a dual message: to Washington, that Taipei is investing in self-defense and ready to buy more U.S. weapons, and to Beijing, that an invasion would be costly. President Lai Ching-te has pledged to lift defense spending to 5 percent of GDP by 2030. Yet the plan faces an uncertain path — President Trump has withheld approval of a $14 billion arms package, calling it "a very good negotiating chip" with China, and Xi Jinping is expected to visit the White House in September.

A $14 Billion Arms Package Hangs in the Balance

The budget's fate rests partly on Washington. For Taiwan to buy U.S. weapons, the White House must sign off on sales, and Trump has held up the $14 billion package as leverage ahead of his meeting with Xi. The timing is delicate: a Trump-Xi summit in September, with potential follow-ups, adds pressure on the president to delay arms approvals to court Beijing.

At home, Lai faces an opposition-controlled legislature that has repeatedly squeezed his military requests. Lawmakers only passed this year's budget late Friday after months of delays, and the two main opposition parties say they will not write blank checks, though they support defense spending. In May, parliament approved extra defense spending of $25 billion — only about two-thirds of what the government wanted, excluding money for domestic programs like drones.

Beijing's Pressure Campaign Intensifies

The spending increase comes as China's military operates almost daily in the waters and skies around Taiwan. Beijing has honed new tactics, including coastguard "law enforcement" patrols off the island's east coast in the Pacific Ocean, and Taiwan finished its annual Han Kuang military drills last week simulating scenarios including how to break a potential Chinese maritime blockade. China's Defense Ministry called the drills a "wasteful charade" that "stoked war panic."

The last time Taiwan's legislature held up defense funding this long, the 2026 budget was only passed late Friday after months of opposition delays — a pattern that shows how each spending push collides with domestic political friction even as the external threat grows.

For markets, the budget highlights Taiwan's strategic position in global supply chains, particularly semiconductors, where the island produces the majority of advanced chips. Any escalation in the Taiwan Strait would ripple through technology equities and regional risk premiums, even as the immediate focus remains on whether Washington approves the pending arms sales and how the Trump-Xi meeting reshapes the balance.

This article is for informational purposes only and does not constitute investment advice.