Taiwan has a problem: Its economy is growing too fast. Defense spending can’t keep up.
One year ago today, Taiwanese Premier Cho Jung-tai (卓榮泰) announced a record 949.5 billion New Taiwan dollars (approximately $30 billion at today’s exchange rate) would be spent on defense in 2026. He said that would be 3.32% of GDP, based on the projected figures for Taiwan’s economy. It was a huge increase from 2.38% in 2025.
But today, August 21, Taiwan’s projected defense spending for 2026 has fallen to just 2.82% of GDP.
Getting the GDP percentage up, as both an expression of will and an improvement in capabilities, is a priority for the U.S. when it comes to Taiwan. The U.S. is Taiwan’s principal military partner against the threat of Chinese invasion.
Elbridge Colby, President Donald Trump’s undersecretary of defense for policy and an Asia-Pacific specialist, said during his confirmation hearing that Taiwan should spend 10% of its GDP on defense. The U.S. representative to Taiwan, Raymond Greene, said in March that Trump wants allies and partners, including Taiwan, to increase their defense spending to 5% of GDP.
Taiwan’s legislature finally passed the annual budget for 2026 last week, only eight months late. It’s a sign of how gridlocked and unhealthy politics has become here. There was no significant cut to military funding. Spending on military equipment and facilities was reduced by 2.5%, but that money can be reallocated elsewhere in defense.
There has been a separate and bloody partisan battle this year over funding defense special budgets, which are distinct from the annual budget and run across multiple years. There was a substantial reduction in what was passed by the legislature compared with what the executive proposed. That won’t show up in the 2026 numbers.
So why has the projected GDP share dropped from 3.32% to 2.82%, if Taiwan is still spending 949.5 billion New Taiwan dollars?
In August last year, Taiwan’s GDP in 2026 was projected by the Directorate General of Budget, Accounting and Statistics to be 28.6 trillion New Taiwan dollars. In August 2026, the Directorate General increased that estimate to 33.7 trillion.
Taiwan’s GDP is predicted to grow by 11.05% this year, an eye-watering amount for a developed economy. By contrast, GDP grew by 8.76% last year and 5.27% in 2024. Incidentally, higher-than-expected GDP growth in 2025 also led to military spending dropping from 2.38% to 2.25%.
Yesterday, Premier Cho announced the annual budget for 2027.
Defense spending is projected to rise from 949.5 billion New Taiwan dollars to 1.1225 trillion New Taiwan dollars, or approximately $35 billion.
That’s a nominal increase of 18%, a substantial uplift.
The government said yesterday this would exceed 3% of GDP. In fact, the current projected defense spending would be 3.01% of projected GDP.
Somehow that seems a lot better than 2.99%.
Nevertheless, 3.01% could be perceived in the U.S. and elsewhere as a lot less than 3.32%. Perhaps if the government were a bit more open about the 2.82% figure, which appears to have never been reported, they’d have a better story to tell.
But instead, the government went in a different direction. If 1.1225 trillion New Taiwan dollars had been spent on defense in 2026, it would have been 3.93% of GDP, they said. But to get that figure they had to use the 2026 GDP projection from August 2025 (which the government acknowledged is what they had done). Based on the most recent figures for this year, 1.1225 trillion New Taiwan dollars would be 3.33% of GDP.
Ironically, that’s virtually identical to the 3.32% the government had said it was going to spend when it announced the 2026 budget last year.
It’s hard to say how much any of this matters. Taiwan has increased the military budget substantially in terms of hard dollars over the past two years.
In fact, the projected spending for 2027 represents a 74% increase compared to 2025. You could say it’s almost doubled.
The one caveat is that in 2025 existing government spending on the coast guard and veterans was folded into defense. Taiwan justified that by saying it was in line with NATO standards.
But those items only account for 12% of the 2027 total military spending.
Taiwan is spending more and more on defense, but the economy, fueled by the AI boom and the demand for semiconductors, is growing so fast it looks like it’s spending less.
In August last year, Taiwanese President Lai Ching-te (賴清德) committed to spending 5% of GDP on defense by 2030, in line with NATO standards. NATO itself clarifies that this 5% includes 1.5% spent on infrastructure, resilience and defense industry. Although Taiwan’s government has not said this, it likely only intends to get direct military spending to 3.5%.
3.01% in 2027 is not that far from 3.5% in 2030. But it will only get further if the economy continues to grow at its current rate.
The government appears to have adopted the strategy of not explaining the GDP figures are changing, and hoping no one does the math. But numbers don’t lie.
Reporting for this article was informed by data provided by Legislator Chen Yeong-kang’s (陳永康) office. Those data are in agreement with figures published by Taiwan’s Executive Yuan and the Directorate General of Budget, Accounting and Statistics.
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