Why Taiwan is spending over T$1 trillion on defence to counter China

Taiwan is preparing to take its defence spending above T$1 trillion for the first time in 2027, as the island looks to counter China’s growing military power not by matching Beijing weapon-for-weapon, but by investing heavily in drones, unmanned vessels, mobile missiles and other asymmetric systems.

Taiwan’s Cabinet is expected to propose a 16 per cent increase in defence spending next year, taking the budget above T$1.1 trillion (around $31 billion), according to official media reports. The proposal is expected to be unveiled on August 20, although the final figure will be decided through the budget process, the report said.

The proposed spending would remain above 3 per cent of Taiwan’s gross domestic product, similar to this year’s level. The increase comes as China expands its military capabilities around Taiwan and the United States pushes Taipei to take greater responsibility for its own defence.

But the significance of Taiwan’s defence push goes beyond the size of the budget.

Taiwan cannot realistically match China in the number of soldiers, warships, aircraft or missiles it can deploy. Instead, Taipei is attempting to change the economics of a potential war by making an invasion difficult, costly and uncertain.

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That strategy increasingly revolves around drones.

Taiwan cannot outspend China

China’s military advantage over Taiwan is enormous.

Beijing’s official defence budget for 2026 rose 7 per cent to about $283 billion, according to Reuters. That is roughly nine times Taiwan’s proposed T$1.1 trillion-plus budget.

China is also rapidly modernising the People’s Liberation Army, adding aircraft carriers, advanced fighter aircraft, missiles, drones and other weapons systems.

The People’s Liberation Army has increased military activity around Taiwan in recent years, with Chinese aircraft and naval vessels regularly operating around the island. Taiwan’s defence ministry has also repeatedly reported Chinese military aircraft crossing the Taiwan Strait median line and operating in areas around Taiwan.

The ‘hellscape’ strategy: Why drones matter

The most significant change in Taiwan’s military strategy is the growing role of unmanned systems.

Drawing lessons from the Russia-Ukraine war, Taiwanese military planners are developing fleets of aerial drones and unmanned surface vessels that could be used to locate, track and attack Chinese forces.

The concept has been described by US military officials as a “hellscape” — a battlefield filled with large numbers of drones, missiles and other relatively inexpensive weapons designed to overwhelm an invading force.

Drones could provide surveillance, identify Chinese ships and positions, guide other weapons and carry out attacks. Large numbers of relatively cheap systems could also force an adversary to spend far more expensive defensive weapons trying to destroy them.

The strategy has become increasingly visible during Taiwan’s annual Han Kuang military exercises, which began this month. The drills are testing Taiwan’s ability to operate under wartime conditions, including the use of drones and other unmanned systems.

Taiwan has acknowledged that it began developing its drone and counter-drone capabilities relatively late but has accelerated the effort in recent years.

The experience of Ukraine has reinforced the urgency.

Ukrainian forces have used drones extensively for reconnaissance, artillery targeting and attacks on military equipment and infrastructure. The conflict has also demonstrated how quickly inexpensive unmanned systems can become essential to battlefield surveillance and strike operations.

For Taiwan, the lesson is particularly relevant because the island’s geography would make a Chinese amphibious assault heavily dependent on ships, logistics and the ability to move troops and equipment across the Taiwan Strait.

From 15,000 drones to 100,000 a month

Taiwan is trying to turn that military requirement into a domestic industrial strategy.

The government wants to increase monthly drone production capacity from around 15,000 units currently to more than 100,000 by 2030. It also wants exports to account for about 50 per cent of the industry’s output value.

That would represent a dramatic expansion of the industry.

Taiwan’s drone output value rose 2.5-fold in 2025 to NT$12.9 billion (around $408 million), according to its Ministry of Economic Affairs. The government sees further growth as both a defence requirement and an opportunity to build a new technology manufacturing sector.

The government has also proposed spending billions of dollars over several years to expand drone production and procurement.

The strategy is designed to reduce reliance on foreign supplies during a conflict. If Taiwan were cut off from external deliveries, it would need to keep producing drones, ammunition, communications equipment and other military systems at home.

That is where Taiwan’s existing industrial base becomes important.

The island is already a major manufacturer of semiconductors, electronics and other advanced technology. Taipei is seeking to use those capabilities to create a more resilient drone supply chain and reduce dependence on Chinese components.

Building a coastal shield

The drone strategy is not being developed in isolation.

Taiwan is also reorganising its coastal defences around mobile weapons and distributed forces.

Its new Littoral Combat Command brings together mobile radar units, missile vehicle units and unmanned aerial vehicle forces. It is expected to rely heavily on Taiwan’s domestically produced Hsiung Feng anti-ship missiles and US-made Harpoon systems.

The command’s emphasis on mobile missile launchers is important.

Fixed military positions are easier for an attacking force to identify and target. Mobile systems can relocate after firing, making it harder for Chinese forces to destroy Taiwan’s anti-ship missile capability in the opening stages of a conflict.

The broader objective is to create multiple layers of defence along Taiwan’s coastline.

If Chinese forces attempted an amphibious landing, Taiwan would need to detect the approaching fleet, track ships and landing craft and attack them before they could establish a secure beachhead.

Drones and unmanned vessels could work alongside coastal missiles, artillery and other systems.

The aim is not to rely on a small number of expensive weapons platforms but to create a distributed network of sensors and weapons that an invading force would have to overcome.

Why the US wants Taiwan to spend more

Taiwan’s defence spending increase also comes as Washington presses allies and partners to take greater responsibility for their own security.

For the United States, higher Taiwanese defence spending serves two purposes.

First, it strengthens Taiwan’s ability to defend itself if China attacks.

Second, it signals that Taipei is prepared to bear a larger share of the cost of its own defence rather than relying entirely on American support.

Taiwan remains heavily dependent on the United States for advanced military equipment, making Washington an important part of Taipei’s defence strategy.

President Lai Ching-te has backed higher military spending and has made defence modernisation a central part of his administration’s policy.

The planned increase therefore has a political dimension as well as a military one.

Taipei is signalling to both Beijing and Washington that it is prepared to invest more heavily in its own survival.

Taiwan is changing the economics of war

Taiwan’s proposed T$1 trillion-plus defence budget is large by its own standards, but it remains far smaller than China’s military spending.

That gap explains why Taipei is focusing on asymmetric capabilities.

Taiwan does not need to destroy China’s entire military. It needs to create enough uncertainty and enough potential losses to make an attack unattractive.

Drones are particularly suited to that strategy because they can be produced in large numbers and used for multiple missions.

Mobile anti-ship missiles can threaten Chinese vessels.

Unmanned surface vessels can add another layer of surveillance and attack capability.

Distributed military units can make Taiwan’s forces harder to destroy in the opening stages of a conflict.

Domestic production can help Taiwan replenish those systems if a war continues.

Taken together, these capabilities are intended to change the cost-benefit calculation facing Beijing.

What does the T$1 trillion budget mean?

Taiwan’s planned record defence budget is therefore not an attempt to match China dollar-for-dollar.

It is an attempt to make Taiwan difficult and costly to conquer.

That means combining conventional weapons with large numbers of drones, unmanned vessels, mobile missiles, artillery and other systems.

The experience of Ukraine has shown how relatively inexpensive unmanned systems can have an outsized impact on a battlefield when combined with intelligence, precision weapons and rapid decision-making.

But Taiwan faces a much bigger challenge than simply buying more drones.

It may build the industrial capacity to produce them at scale, train personnel to use them, protect them from electronic warfare, maintain resilient communications and integrate them with conventional forces.

China, meanwhile, is also developing its own unmanned capabilities and counter-drone systems.

That means Taiwan’s defence spending increase is part of a broader race over what warfare across the Taiwan Strait could look like.

What happens next?

Taiwan’s Cabinet is expected to unveil the proposed 2027 defence budget on August 20. The final figure could change before the budget is approved.

If the budget crosses T$1 trillion, it will mark a significant milestone in Taiwan’s military build-up.

But the more important question is whether the additional spending can translate into an effective deterrent.

Taiwan is betting that drones, mobile missiles, unmanned vessels and a resilient domestic defence industry can compensate, at least in part, for the enormous military imbalance between the island and China.

The bet is not that Taiwan can become as powerful as China.

It is that Taiwan can become difficult enough to conquer that the cost of trying outweighs the potential gains.

Whether that strategy works will depend on whether Taipei can turn its record defence spending into mass production, battlefield integration and survivable military capabilities — before a crisis begins.

With inputs from agencies.