The fight over military spending in Taipei is not about obstruction. It reflects deep mistrust of domestic commissioning, opaque local prime contractors, and a procurement system without meaningful accountability.

Last year, Taiwan unveiled a massive $40 billion supplemental defense budget on top of its regular annual defense spending, which sits at roughly $14.6 billion for 2025. While the scale of this investment is significant, the proposal has hit a wall in the Legislative Yuan, Taiwan’s parliament. Although there are efforts to hike the current consensus target of $11.7 billion up to $24.6 billion, political infighting has left the proposal in limbo.

This special budget is intended to cover well-defined systems like HIMARS, ATACMS, M109A7 self-propelled howitzers, Javelin missiles, and TOW missiles. It may also include advanced air-defense components reportedly linked to Taiwan’s T-Dome concept, such as Patriot PAC-3 MSE missiles or the IBCS (Integrated Battle Command System). Furthermore, the government has boasted about investing billions of dollars into what it calls a “Drone National Team,” a domestic industrial coalition meant to build large-scale unmanned systems production capacity. 

Top-Line Defense Budget Growth Isn’t Everything

In Washington, Taiwan’s defense budget is often viewed as a simple calculation. What is defense spending as a percentage of GDP? How much has it increased over the past year? Has Taiwan responded to US demands to shoulder more of its own defense costs?

This spreadsheet of numbers is useful for Washington. If the figures are large enough, they can be packaged as a political achievement, serving as proof that the United States is successfully pushing its allies to spend more on their own defense. It is useful for the American Institute in Taiwan (AIT), America’s de facto embassy in Taipei, for the same reason. For the State Department, the Pentagon, and Congress, these figures translate into a concise political narrative suggesting that Taiwan is stepping up.

The formidable challenge is that Washington still has a significant information gap when it comes to Taipei’s procurement politics. 

The current deadlock in Taipei is not a simple question of whether Taiwan should increase defense spending, on which there is broad consensus. Instead, the real issue centers on the procurement regime that will govern how the money is spent, into whose hands it will flow, and whether it will actually translate into combat capability. Critical questions remain regarding who the prime contractor is, who is responsible for delivery, and who bears the cost of failure. 

Taiwanese society is highly sensitive to defense procurement due to a history of unsettling past experiences. In recent years, the public has seen absurd tenders in which companies with no apparent defense expertise, ranging from tea shops to snack bars, pop up in discussions for sensitive ammunition or equipment contracts. These cases are more than just local jokes, but red flags to Taiwan’s broad public opinion. They remind the public that if the prime contractor and the subcontracting structure are opaque, even the most sacred defense budget items can be siphoned off by incompetent local firms or middlemen.

The United States, of course, is no stranger to absurdities in its own defense budget. But for a military of limited means facing uphill odds while preparing for battle against a far stronger adversary, it is imperative that every dollar be spent wisely. The Taiwanese people understand this, and it is this principle that lies at the core of the robust public debate over the defense budget today.

The Three Paths of Taiwanese Military Procurement

To understand this dispute, one must understand the three primary paths Taiwan takes to acquire weaponry. 

The first path is Foreign Military Sales (FMS), overwhelmingly from the United States. This is a straightforward government-to-government transaction. Taiwan submits a request, the US government conducts political and military assessments, the State Department manages the diplomatic timing, and the Department of Defense, DSCA, and relevant services handle execution, pricing, delivery, and logistics.

The advantage of FMS is a clear chain of accountability. However, FMS has never been a purely commercial transaction; it is always a segment of the United States’ foreign policy. When Washington is engaged in strategic dialogue with Beijing, the announcement of sensitive sales may be slowed, segmented, or delayed without warning.

The timing of the FMS process is one major reason the defense budget is currently stalled. The portion of the budget with the most consensus consists of the items that have already gone through visible FMS channels, such as HIMARS and Javelin missiles. These are easier for the legislature to accept because the nature of the deals is obvious, the link to US government supervision is evident, and the accountability chain is discernible. The real friction begins as the budget moves toward the higher mark that is expected to include advanced FMS items like PAC-3 MSE and the Integrated Battle Command System. If these had already been formalized through the FMS process, the special budget would have high legitimacy, and the legislature might well have approved the funds by now. However, because these FMS cases have not yet been finalized, a political and procurement vacuum has emerged. Into that vacuum have stepped DCS proposals, domestic manufacturing schemes, and various middlemen. 

The second path is Direct Commercial Sales (DCS), through which the Taiwanese government signs a contract directly with a US manufacturer. In a “true” DCS arrangement, the Taiwanese government contracts directly with a US defense manufacturer or exporter, rather than routing the purchase through a local prime contractor. Liability for delivery, warranties, maintenance, and upgrades remains with the US original equipment manufacturer (OEM).

DCS is more flexible and often faster than FMS. If the prime contractor is a reputable US firm, the chain of responsibility is clear, and the pricing is verifiable. This can be a viable solution that satisfies Washington’s demand for higher spending while avoiding FMS delays. The harder question is whether the State Department and the Pentagon are prepared to endorse newer or less proven defense contractors in sensitive DCS arrangements.

But the most critical issue Washington must address is the often-neglected third path: domestic commissioning and indigenous production.

They Gray Zone of Hybrid-DCS Projects  

Domestic commissioning is not the same as DCS. In this model, the prime contractor is not a US manufacturer, but rather a local entity like the NCSIST (National Chung-Shan Institute of Science and Technology), a Taiwanese company, or a local private startup. The Taiwanese government gives the total sum to a local prime, which then uses that money to buy defense-related intermediate goods—equipment, licenses, components, technical data packages, or software APIs—from US firms. 

The political language used to sell this path is “defense autonomy,” “Unmanned National Team,” or “Non-Red Supply Chain,” a Taiwanese shorthand for supply chains free of Chinese components. These are valid goals; Taiwan certainly needs a degree of self-reliance. The issue, however, is that once domestic commissioning becomes entangled with foreign technology, licensing, components, and Direct Commercial Sales (DCS) procedures, it creates a legal gray zone for which oversight is exceptionally difficult.

On the US side, the subcontractor may believe it is conducting a standard commercial sale. On the Taiwanese side, however, the local prime contractor controls overall project management, pricing, and risk allocation. The Ministry of National Defense will see a lump-sum price on one end, while the US OEM will see a different price on the other—one that typically will not be disclosed to the public. Between the two are black-box fees for integration, consulting, and project management, which can result in significant opaque price differences.

When Defense Autonomy Becomes an Oversight Concern 

Contracting through local industry is not inherently bad. The problem is that “indigenous production” can be used to justify limiting competition to local primes or agents. By claiming that a project is vital to enhancing Taiwanese defense autonomy, procurement insiders can justify limiting tenders to local primes or agents. This gives local firms an institutional advantage without having their technical capabilities or pricing validated by a competitive market.

This is the intersection where the Taiwanese drone industry currently sits. Drones and counter-drone systems are critical for asymmetric warfare. Because these terms are politically unassailable and urgent, they are the most prone to being used to mask opaque domestic commissioning. When a project is shielded by the “National Team” narrative, it becomes harder for outsiders to verify if the local prime is actually capable of delivering or if they are merely buying a limited software license and calling it technology transfer.

In recent years, the narrative in Taiwan has been that FMS led to backlogs and that traditional procurement doesn’t leave technology in Taiwan. This has led many startups to pitch indigenous production as the answer to Taiwan’s security anxiety. But they overlook the fact that public hesitation is not driven only by delays, but also by fears of corruption. 

Bridging the Strategic Information Gap  

To navigate this stalemate, Taipei could first pass a larger special-budget framework of roughly US$24.6 billion, while making clear that the funds will be spent primarily through FMS or through DCS arrangements with credible prime contractors, clear liability, and verifiable pricing.

Over the long term, Taiwan must reform its procurement system. The MND should move toward international competitive bidding, and unless there are highly compelling national security reasons, American, European, and Taiwanese firms should compete on a level playing field. Let the best solutions and prices win. If Taiwanese firms are truly capable, they should win through competition—not through a special status granted by the “indigenous” label.

On Washington’s side, US officials clearly underestimate the importance of FMS in driving Taiwan’s budget increases. In Taiwan’s current political climate, securing approval for large-scale budgets is highly achievable as long as there is an opportunity for an FMS deal. Instead of settling for simplistic narratives, US officials must actively champion FMS cases to break through Taipei’s domestic budgetary deadlocks. 

Finally, policymakers must look beyond top-line GDP percentages. Washington should not ignore the root causes of this budgetary deadlock or accept the simplified narrative that it is merely partisan obstruction.

Those who truly care about Taiwan’s security should press Taipei for answers by inquiring as to who the prime contractor is for these massive investments, who is liable, and whether the technology can be verified. They must also determine if the price is transparent and whether these systems can be integrated and repaired during the war. 

Taiwan’s “Defense Autonomy” cannot become a gray zone for graft or an obstacle to building public and international confidence in Taiwan’s defense buildup. In the end, the enemy will not care about GDP percentages on a spreadsheet. They will only test whether these systems can detect, strike, and survive on a real battlefield. If they cannot, no amount of spending will constitute a true deterrent or reduce the strategic burden on the United States. 

About the Author: Kevin Ting-chen Sun

Kevin Ting-chen Sun is a senior legislative policy advisor in Taiwan’s Legislative Yuan. He currently works with legislator Ching-hui Chen and previously advised former Foreign Affairs and National Defense Committee Chair Charles I-hsin Chen. He is also a licensed attorney and a non-resident research fellow at the Institute for Taiwan-America Studies in Washington, DC.

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