Why So Little? The Curious Case of Taiwan’s Defense Spending

Abstract

Taiwan’s defense budget continues to be a friction point in U.S.-Taiwan defense relations. Despite having adopted allocating 3 percent of its GDP towards defense as a target, Taipei continues to hover around 2 percent in annual defense spending. This dissertation examines the reasons for this shortfall and also assesses if 3 percent is an appropriate or meaningful target. It argues that Taiwan’s defense spending is constrained by a multitude of factors across political contexts, practical limitations, and procedural impediments. As such, using 3 percent of GDP as a standard for Taiwan’s defense spending or measurement of its commitment to self-defense, without adequately understanding all the factors, would be inappropriate and superficial. First and foremost, international isolation along with domestic necessities shape Taipei’s defense behavior politically. On the international level, geopolitical isolation makes Taiwan reliant on U.S. support but the fear of abandonment continues to motivate Taipei’s behavior in its relationship with Washington. At the domestic level, the lack of decision-making centrality and cohesion undermine Taipei’s ability to change. Second, financial, geospatial, and demographic realities impose practical limitations that further constrain Taiwan’s defense choices. A limited financial base forces Taipei to make investment tradeoffs in maximizing the island’s security; Taiwan’s small land mass and proximity to China makes the island prone to being saturated by defense hardware; and low birth rates and aging population negatively affect Taiwan’s defense readiness. Finally, administrative obstacles procedurally undermine the effectiveness of U.S.-Taiwan defense interactions. Washington’s restrictive approach to dealing with Taiwan and Taipei’s bureaucratic rigidity collectively undercut effective U.S.-Taiwan defense interactions.