Silicon Shield at risk? Taiwan to raise defence spending to 3% of GDP—will it appease Trump and deter China?

Taiwan is set to raise its defence spending to 3% of GDP in an effort to strengthen its military capabilities amid growing pressure from both the United States and China.

President William Lai announced the spending boost on February 14 after a high-level security meeting, emphasising the need to safeguard Taiwan’s sovereignty in the face of rising threats from authoritarian regimes.

The decision follows US President Donald Trump’s renewed push for trade restrictions on Taiwan’s semiconductor industry, a sector crucial to both the global supply chain and Taiwan’s economic security. However, questions remain over whether this increase will be enough to satisfy Washington or deter Beijing.

Experts argue that while raising defence spending to 3% of GDP signals Taiwan’s resolve, it may not be sufficient to meet US expectations. Trump has repeatedly insisted that Taiwan contribute more to its own security, suggesting a 10% GDP allocation for defence.

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Zivon Wang, a military analyst at the Chinese Council of Advanced Policy Studies, a Taipei think tank, told SCMP that increasing the defence budget to 3 per cent of GDP would not be enough for Washington.

“The Trump administration certainly would not be satisfied – they want at least 5 per cent,” Wang said.

He added that Taiwan would need to gradually raise defence spending to reach the 3 per cent goal, as budget proposals required prioritisation and comprehensive evaluation. “But the 3 per cent level is at least a good start, which could temporarily ease the pressure from Trump’s 10 per cent demand,” Wang said.

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Taiwan produces more than half of the world’s semiconductor chips and nearly all of the most advanced ones, making it indispensable to global supply chains. This economic leverage, often referred to as the “Silicon Shield,” has been seen as a deterrent against potential aggression from Beijing, which claims Taiwan as its territory and has threatened to use force to bring it under its control.

While Taiwan’s planned defence spending increase is a step toward bolstering its security, the question remains: Will it be enough to reassure Washington and deter Beijing, or is the Silicon Shield facing its biggest test yet?

Taiwan’s defence push

Taiwan’s military spending has steadily risen in recent years, growing from NTD 365.8 billion ($11.2 billion) in 2016 under former President Tsai Ing-wen to NTD 606.8 billion last year.

The proposed increase, which still requires legislative approval, would see the defence budget reach NTD 647 billion, or 2.45% of GDP, for the current fiscal year.

However, the opposition-led legislature has already moved to cut and freeze portions of the budget, casting doubt on whether the 3% target is achievable.

Experts suggest that while meeting Trump’s 10% or even 5% targets is unlikely, raising defence spending to 3% is a step in the right direction.

Taiwan’s trade surplus with the U.S. reached a record high last year. Based on projected GDP, a 10% defence budget would consume 84% of the government’s total expenditure, and even a 5% target would require 42%, which experts consider unattainable.

However, Trump’s push for tariffs and his scepticism about Taiwan’s strategic value have raised concerns about the future of US-Taiwan relations. Taiwan’s trade surplus with the US hit a record $64.88 billion last year, fuelling Trump’s argument that the island must contribute more to its own defence.