COL Kyle Marcrum and Dr. Jessica Liao
In part one of this two-part episode, COL Kyle Marcrum and Dr. Jessica Liao discuss Taiwan President Lai’s special defense budget and why it is stalled in Taiwan’s Legislative Yuan.
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COL Kyle B. Marcrum
Welcome to the
CLSC Dialogues, a production of the China Landpower Studies Center at the US Army War College. The opinions expressed in this podcast are those of the speakers and not necessarily those of the Department of the Army, US Army War College, or the US government.
I'm Colonel Kyle Marcrum, Director of the China Land power Studies Center. I'm joined today by Doctor Jessica Liao, associate professor of Asian studies at the US Army War College. She was also a Wilson China Fellow of 2020, and in 2022, she was the Economic Development Specialist in the US Embassy, Beijing, which was a little after my time. I was there ’14 to ’17. So thank you for commuting all the way from where—you came today from, instead of—I normally was going to say, I'd planned to say “thank you for commuting all the way from your office two stories above”, but I guess you're today you've actually drove up from Virginia?
Jessica Liao
Yeah. That's right.
Marcrum
Thank you for joining us.
Liao
Well, thank you so much for this opportunity. I'm delighted to be here talking about very important, timely topic.
Marcrum
Yes. And what Jessica and I are today we're going to talk about is Taiwan, specifically some of the recent undertakings in Taiwan politics. I think that there's a lot to be covered, a lot of complex background that needs to be talked about that is difficult to understand if you haven't been watching this for a long time. And so Jessica and I will start there.
Jessica, one of the main things I wanted to talk about was Taiwan's defense budget. And one of the things I wanted to point out was this morning I was reading an article that called it Taiwan's Defense budget. In fact, it was in an article talking about multiple members of the Senate, US Senate, had traveled to Taiwan and wrote a letter to Taiwan to say, you need to pass a defense budget. I didn't read the actual letter from the senators, but the article made it sound like they were trying to pass a defense budget at all.
But from what I, what were one of the things I wanted to talk about is this is actually a special budget. It's outside of their normal budget, but it's getting caught up in their unicameral legislative body called the Legislative Yuan. And I was wondering if you could talk to us a little bit about the three main political parties inside the Legislative Yuan.
Liao
Okay, great. That's a good starting point to get our listeners about the Taiwan politics and its background. So the landscape is basically three major parties, well, actually two major parties and then one half party. So it's sort of like United States it’s a bipartisan kind of system. And William Lai, that was the president of Taiwan now, his party is Democratic Progressive Party. And people also nicknamed it as the Pan-Green Coalition platform that is traditionally focusing on strengthening Taiwan's indigenous identity and maintaining the status quo in cross-strait relations and promoting Taiwan as a sovereign nation independent of the PRC. Although they never de jure, you know, like they make that kind of like independence as a de jure status. It's more like a de facto status.
So that is the one that is controlling the executive branch of the Taiwan government. However, in the parliament, in the Taiwan parliament, that is sort of like a, you know, control, semi-controlled by the KMT, that is Kuomintang party, also known as the Pan-Blue Coalition. And KMT is the longest party standing in Taiwan. That was also the party led by Chiang Kai-shek when he fled to the island in 1949, so traditionally holding a more conservative and pro-business stance, and advocates for a closer dialog and economic exchange and ties with the mainland to reduce tensions and, you know, keeping a more, like, I would say pro-Beijing kind of position.
And this kind of bipartisanship has been long standing in the Taiwan political history until 2019, when more and more voters start to get unsatisfied of this kind of like polarizing dynamic between the two parties, and then started with this leader called Ko Wen-je. He was the founder of Taiwan People's Party TPP in ’19, in 2019, and their position is more pragmatic and tried to stand in the middle ground between the two parties on their like cross-strait approach.
So they are more focusing on domestic issues such as like social and housing and administrative efficiencies, while attracting young voters and also dissatisfied voters from the both sides. So, following the January 2024 presidential election and the inauguration of William Lai, William Lai, Taiwan's political landscape is characterized as a divided government where the ruling party holds the presidency, but no single party commands an absolute majority in the 113 seat of the Legislative Yuan.
Still, KMT have the upper hand, so within this 113 seats, KMT preside 52 seats, while DPP have 51, which was dramatically declined from the previous, the peak of the 2000—between 2016 and 2020. And then TPP, the third party, host—was basically the swing vote seats—host 8 seats. And there are also 2 independent sees that traditionally tend to vote with KMT.
Marcrum
If I can, for just a second. I think this is a really important part here where we talk about the Legislative Yuan, or the LY as it's called, when the LY is trying to pass or, you know, President Lai is trying to pass something like this defense budget, he's automatically, you know, he can rally his party, the DPP.
Liao
Right.
Marcrum
And he's got 51 votes there, but he needs the majority, just a simple majority. He can't get that alone. So automatically that, you know, the TPP has 8 seats, but they really become the kingmaker in this situation because the KMT needs them, because they don't have a majority on their own, and the DPP needs them because they don't have a majority on their own.
And so I think it's a really interesting point where you have this, it almost becomes a coalition government in a way, because you need to put together these pieces to form the least viable party to get across that line. And I think that's where when we're talking about the defense budget, where that's really going to come in.
Sorry, I didn't mean to interrupt you on that.
Liao
Yes. You're absolutely right that the current status of LY is basically a coalition base in terms of budget passing and particularly on the defense budget. And you can see that there are a lot of dissatisfactions and also critiques on President Lai’s proposal, which a lot of people believe that is very unjustifiable in terms of its skill and also in terms of the details of the information, you know, provided to the public as well as the legislator.
Marcrum
When you talked about the scale, do you have the number for the defense budget?
Liao
Sure. So there are two parts. Yeah. Going back to that letter that you were talking about and the senators, maybe we can just go into the detail of that. So, the basic budget, the regular budget, that is the annually, you know, you know, annually past budget, that is about 2.5% of Taiwan's GDP. But last, no, in 2026, they actually changed the accounting system to make it more aligned with the NATO's count. That includes the Coast Guard as well as the Veterans Affairs into the whole defense budget. So that may get into 3.3%.
And that is in line with what President Lai wants. But you can see that in late last year, in 2025, President Lai actually wrote an op-ed on Washington Post, basically pledge to Washington that they are, you know, they vowed to meet this kind of budget to like 5% of the GDP by 2030. And you can see there is a gap between 2.5% of the defense budget versus 5% of the GDP.
Therefore, you need a special defense budget to fill that gap. And that is what the most contesting point is about. How much of that defense budget is justified and can be, you know, passed by the LY?
Marcrum
And that's really interesting because when we talk about these percentages of GDP, Taiwan's economy is growing incredibly fast. I believe the last figure I saw was it grew by 8.5% last year. So when you look at—particularly in this time when China is having economic issues, the United States is kind of having economic issues as well—what we're seeing is Taiwan's huge growth.
So when we're talking about a defense budget that's growing as a percentage of GDP and an economy that's growing, that's a rapidly expanding defense budget, and it becomes kind of, where do you start stuffing all this money at a certain point?
Liao
That's right.
Marcrum
With a, you know, Taiwan has a declining birthrate. They're having a hard time filling even their conscripts roles because they have such, you know, there’s the shrinking age of young people. And so it really becomes a problem. And it became quite a problem with US foreign military sales because of the time gap between purchase, or, signing the contract for a component and then receiving it, it really becomes kind of an issue that the Legislative Yuan brings up occasionally is, why would I throw more money at the United States when they're not delivering things like the F-16s that are that are late right now? They just I believe they just had to get a special extension from the United States for another product because it was having trouble getting through the Legislative Yuan. Yeah. So very interesting points on that.
Liao
I do want to caveat this kind of, like, high growth kind of situation. I would say that the past two years’ growth, that is in many ways the geopolitical and geo economic windfall of the whole global supply chain that is really all geared towards AI. And also, you know, therefore the demand of semiconductor really just boom. And Taiwan really just like, you know, catch this kind of windfall effect. And in fact, the, you know, yesterday's big headline is that Taiwan's stock value already surpassed the UK stock value overall. Of course, led by the crown jewel of the island's industry, TSMC, the Taiwan Semiconductor Corporation.
But, you know, in fact, if you look at like the past decade, especially in the aftermath, immediate aftermath of the COVID, the growth rate has been pretty stagnated. I would say, like maintain around 3 to 4%. And the most important thing is the income. The wages is pretty much like, you know, being like stagnate for like past two decades. And the reason is because, you know, on the other side of the Strait that there are a lot of laborers there like, you know, can do exactly the same thing and with a much lower wages.
So a lot of the factories has been like hollowing out and move to mainland. And that's why it creates a lot of pressure on the wage growth. So a lot of those, like growth is not really evenly distributed to the most needed part of the society. And that is not a phenomenon unique to Taiwan. That is really a global phenomenon.
So there is, and therefore it comes to, you know, the government's role. How do you redistribute this income that is coming from all this like sudden growth from the manufacturing, especially semiconductor industries, how do you make it like, you know, evenly justify so everybody can have a decent share of the pie and, you know, make everybody happy. So the defense budget become a contesting point about this versus other social and also welfare spending.
Marcrum
That’s really interesting because it goes back to the whole Legislative Yuan debate.
Liao
Yeah.
Marcrum
Because you talked about how the TPP, as I summarize it, it's more the kitchen table issues. It's the things about how, you know, my cost of living is going up and my wages are stagnant.
Liao
Right.
Marcrum
And then you have—so you have an economy that's going up incredibly, or it's going up, but it's not being equal. That's where the TPP really comes in. But you also have when I was there, so I was there from 2022 to 2025, the KMT, with a lot of this, they would in, Taiwan at the end of the their year—so there they don't have a fiscal year, they go calendar year.—at the end of the year they would have a budget surplus. And the debate was, what do we do with this surplus? And the KMT wanted to send checks back to the taxpayer. And it goes back to that how do you—it's the debate of how do we actually distribute this in this growing economy? How do we make it more profitable? Or more equitable, maybe, is the way to say it?
That's really interesting.
Liao
And I think that also, you know, brings the point about the debate of the arms sales. Right? So one point that you already correctly describe is the, the problem with all the backlogs of the previously order. So before William Lai, the previous president of Taiwan Tsai Ing-wen already like dramatically increased the defense budget and also using the same strategy, the special defense budget. Between 2016 and 2020, Taiwan's defense budget actually came from the low point during the previous president, Ma [Ying-jeou]’s, point, about 1.6 to 2% of the GDP increasingly boost up to like 2.5-2.6. So it's like 0.5% of GDP growth within like only three years, four year span. And and they use this kind of like special budget to buy a lot of like big ticket expensive items like, you know, F-16. However, I think according to a KMT affiliated think tank’s calculation so far we still have like 30, over $30 billion of the order that is backlogged and yet delivered, including the very important F-16. So a lot of people complaining about, okay, if even if we pass this budget and do the procurement, will all this important defense equipment be here when we really actually need it? Right? That is a really important part of the critique on William Lai’s proposal.
Marcrum
If if I can. You have to forgive me. I'm going back to my time at the American Institute of Taiwan. My security cooperation chief would kick me if I didn't correct the KMT point, because you're right, the KMT says $30 billion backlog. But it depends on how you count when it's due. And so one of the main things that we always talked about when I was at AIT was, if you look at it, it's I believe at the time it was a $9 billion backlog, truly delayed delivery, things that were not coming on time as compared to the you know, we Taiwan in their initial discussion says we want it on date X and it doesn't come by date X. It's not in the contract. It's not delayed. But you're right, it's still at the end of the day, there are facts and there's perceptions. And the perceptions can often become much more important than facts, particularly when we're talking about dealing with legislative bodies, right? Where it's, you know, the talking point of “no, no, it's more nuanced than that” doesn't really fly too well with legislation, with anybody, right? And so when we're talking about the LY and saying, you know, it's a oh, it's smaller than that because of this nuance and this nuance, what's still going to stick in their head is that these FMS cases, these foreign military sales cases—
Liao
Absolutely. I think a lot of the details, you know, the devil is in the detail.
Marcrum
That's right.
Liao
Right. And it doesn't matter. And I think because of the bipolarized like, you know, bipartisanship like dynamic in the island that make it very hard to discuss all that detail and nuances and to actually get the numbers straight. And people like to see like, oh, this is a KMT think tank, so, you know, this is a party that I vote for, and therefore I stick to the numbers that they tell us.
Marcrum
That's right.
Liao
So there is always this kind of like reinforced like perception. Yeah I'm pretty sure.
Marcrum
Yeah.
Liao
But I think that is also, you know, become very much like affect how people responds to the second topic, the second point of KMT’s critique, which is guns versus butter.
Marcrum
Right.
Liao
That is so we have this special budget to do, to decide what do—what are we going to do with the budget surplus? Then Taiwan's tax-to-GDP ratio is approximately 13%, like historically, which is a pretty lean government. And so it's a very low kind of like physical budget. And you have to do a lot with this. And I would say 70% of the the physical budget is mainly on the domestic, social welfare, and all the education and of course the most known like universal health care. Right?
Marcrum
Right.
Liao
So this is something that the Taiwanese public deem as like the most important items. And so when we are talking about 5% of the GDP, that is a huge chunk of this, right? And you basically are going to reorient the entire budget system within a very short time span. And that's why it's very hard for voters to understand the clarity and justification to make such a seismic shifting of, you know, of the budget redirection.
Marcrum
This is really interesting because one of the other things that comes up a lot, you know, earlier you had mentioned that the Legislative Yuan was upset because they don't feel that they're getting the clarity they need on the defense budget. And part of that comes back to, you know, you're talking about this guns versus butter side of it.
Liao
Yeah.
Marcrum
Kind of all tied together, because when you're trying to go to a legislative body and justify spending money, it does not make—you have to come with hard tickets with solid ideas. And if you come with a kind of a, well, we need to spend it on development of this, it's not as easy to get through. And so that lends to big ticket items like F-16s or whatever.
And I keep raising F-16s because it's one of the, it's kind of a contentious issue nowadays. It's easy to point to, you know, when we talk about the everyday gray zone incursions that Taiwan has to push up against versus the joint island landing campaign, the role of an F-16 is very different. And some argue that in the joint island landing campaign that F-16 would be worthless.
So then, okay, if this is the the debate they're having, where does Taiwan spend their money, how do they justify that to a Legislative Yuan becomes very hard. And I also wanted to point out in recent news, retired Admiral Montgomery had just traveled to Taiwan, and he argued with their Legislative Yuan, saying that you're fiddling while Rome is burning and saying that they need to get this budget passed.
And it goes back to this is a very complicated issue for Taiwan. And they have a lot of sides, a lot of different competing arguments. And at the end of the day, all politics are local, right? Taiwan's going to do—the Legislative Yuan in particular—is going to do what it takes for them to appeal to their constituents to get reelected.
So it's a difficult, a very difficult place for Taiwan to be in right now.
Liao
Absolutely. And yeah, I think the focal point of the critique on F-16 and its efficacy to actually defend Taiwan is spot on. And another thing about this kind of like, you know, critique on the opaque, the opaque money pit is also tied into this so-called T-Dome, like Taiwan Dome, that a lot of people, you know, believe that this is a concept that they try to replicate from, like Israelis’ model. But then within the legislature, like the LY, like a lot of debate is about like, oh, how much of this like concept based on Israeli is applicable to Taiwan, given the differences of its geography and also the whole defense system and the landscape and all that, and the kind of threat that is coming for the island is very different?
And not to mention the recent development and activities that PLA has projected. It's also very different like, and we don't really, and what the Legislative Yuan, especially KMT legislators, are arguing, is that we don't really know enough about the substance, what is going to apply to this kind of T-Dome?
And of course, William Lai have their own justification. A lot of this T-Dome is also trying to, you know, shift away from what you were saying, those big ticket items into the so-called the new porcupine kind of strategy. You, Kyle, I believe that, you know, all of this substance more than I do, like what exactly constitutes as porcupine and what kind of equipment and weapons need to be done to be procured in order to, to enhance this kind of capability? You can tell me and the listeners.
But I think a lot of the critique is that like how much of this is justifiable, but William Lai is saying like, well, you know, we not only have to do this like big shift into the more, you know, porcupine kind of strategy, but it's going to also enhance the kind of like, you know, defense industrial base connections between the United States and Taiwan.
So he tried to reframe this, you know, a budget from like wasting resources into a more of the strategic long term investment. However, so far, he still haven't been able to convince the voters.
Marcrum
You know, in the shifting, one of the important parts of growing the US-Taiwan cooperation is and this was covered by Director Raymond Greene in his recent interview with wealth.tw. Sorry. And he he talked about how they're trying to get a red-free supply chain and this idea that they're trying to, you know, stop buying so much from China, particularly when it has to do with national defense, because if you're going to be fighting China, it doesn't make sense to be reliant on them for parts, particularly when we talk about unmanned systems, the drone, the commercial drone economy. I believe it's something like 90% of commercial drones are purchased from DJI from China.
So it makes sense that the United States and Taiwan would cooperate to create this kind of red-free drone supply chain, at least. But it, again, it's convincing the voters that this is where their money needs to go. I wanted to bring up another big supply item with Taiwan's indigenous submarine, which I love the name of it. It's called the Narwhal. It is, but it's, you know, the indigenous submarine has become kind of a one of those issues that the LY gets stuck on. The perception that this is a lot of money, that they're sinking into something that may not be survivable, may not be viable. It's still undergoing sea trials and things like that.
So is it really the thing that they should be putting their money into? But then all this on the flip side, we just talked about it. If you're not going to put all this money into an indigenous submarine, you want to put it into things like, you know, production of brushless motors, which go into drones in Taiwan, that becomes a much more fluffy issue. That's harder to try to get through a split Legislative Yuan. So it's a it's definitely a difficult situation for them to be in right now.
Liao
Can you also tell the listeners and myself as well about a T-Dome and why this is a contesting point, and what is the opacities of this?
Marcrum
Yeah, yeah, the T-Dome is fascinating. I think that there's you know, you hear a lot of these, like the Iron Dome, the Golden Dome, the T-Dome. The idea is that in a world where in a, you know, in the previous combat, indirect fires or long-range indirect fires, rockets and things like that weren't as prevalent. And what we're going to what we're seeing now is this increase. You know, I saw it when I was in Iraq many, many years ago where there's this increase in cheap, even sometimes homemade missiles or timers that are used to do indirect fire. And with Israel in their Iron Dome facing kind of a limited—I shouldn't say a limited missile threat, it’s definitely not limited to them, but compared to the numbers that China will be volleying at Taiwan very limited.
So Taiwan is facing a real problem right now. One of their main air defense systems is the Patriot missile, the PAC-3. So it's very, you know, it's proven to be accurate. The problem is the Patriot is a I believe it's over $1 million per missile. And then when you fire it, you're firing it at a rocket that is fired, particularly from China with their new multi launch rocket system, they're going to be firing thousands of these rockets.
You can't afford that kind of response. So what you need is a cheaper rocket that can be fired at it. That's part one is you need mass and cheap. Part of it, people are looking at things like directed energy weapons, which are much cheaper but much harder. And then you have to talk about energy demands, and Taiwan's got its own energy issues with the you know, we were just talking about the DPP just got elected off of we're going to shut down all their nuclear reactors. And now suddenly that's not may not be as viable as they had hoped.
So you have these issues on that end. The other side of it is that the Patriots are behind. I shouldn't say they're behind on production, but we, in Iran, we spent I think the estimate over the first two weeks of Iran was hundreds was the estimate, hundreds of Patriots. When we, I believe Lockheed Martin produces 63 a year. And so when we are spending at a rate that we can't replenish ourselves, how are we going to be selling them to Taiwan at a number that they can stockpile to be able to respond?
So the idea behind T-Dome was that they would be able to fund some indigenous programs. They would be able to purchase multiple different kinds. The integrated systems, when we talk about, anytime you talk about military weapons, you got to talk about how they integrate together. How do you integrate these into a combined fire to where we're not shooting all of our missiles at one incoming missile. So it's a very complicated project, and I think it's an interesting one that Taiwan does need to focus on. But then again, you've already run into all these new problems. Number, you know, I'm going to quote Colonel Mike Long here from SSI when I say that you know, the the cause and the solution to all your problems is money. And you know, Taiwan needs this T-Dome concept. But at the end of the day, we're right back to this budget.
They need the money to be able to put it in. But we're talking to the legislation. And there's still people in Taiwan, it's a growing concern that China might invade or blockade or something, but it's still the difference. One of the things we didn't really talk about with the DPP and KMT, and you did kind of say that the KMT has more ties with the mainland, but the KMT seeing that, what do they call it, deterrence and dialog. They want to talk to Beijing to, to kind of smooth things over. So we shouldn't be spending the money on these, this really this mythical idea of a T-Dome or whatever. So it's very complicated.
Liao
So I think that yeah, that's a great segue way to bring out the third point of the critique and the opposition to William Lai’s proposal. That is, why are we putting all our bid into, you know, deterrence versus have a peaceful dialog and approach, which seems to be much more cost effective. And it seems like in the short term, more effective as well, especially in the backdrop of the new KMT chairman's visit to Beijing.
It seems like, you know, suddenly this tension just like de-escalated and a lot of good wills were released by Beijing in order to show that they still have this phase in a peaceful unification. So I think there is also this perception that was coming from, well, like the island perceive this like increasing pressure from Washington on the so-called burden-sharing posture.
And we know that, you know, last year, the undersecretary of defense, [Elbridge A.] Colby, give out a famous testimony, basically call out for 10% of the GDP budget for Taiwan to go into defense. That is basically a very much a wartime posture, right? United States spend like 11% of the GDP during Korean War, 8% in during Vietnam War. And currently, like we talked about earlier, Taiwan's defense budget in the regular phase is like 3%, 3.3% in this year. So jump from 3.3% all the way to 10%. That's a huge gap, if not impossible. It's basically we are talking about collapsing the whole domestic budget scenario.
Marcrum
Right.
Liao
Right? So and that's why that, you know, coming out into the backdrop of the counteroffer by William Lai: How about 5% before 2030? And a lot of people still just have this kind of like perception or, you know, William Lai is like caged to the pressure from Washington and like, you know, to this budget is not like well justified.
And they believe there is this kind of like threat, you know, pressure coming from Washington and also another like scenario, another like event that is coming that has like complicated this kind of perception is the May summit between the US and also the Chinese president. A lot of people in Taiwan are seeing this as, you know, a moment that that is like a grand power bargaining, and Taiwan might be the pawn that could be like, you know, jettisoned by either side.
Marcrum
Right.
Liao
So there is this kind of like, you know, mistrust on both sides. And they think that Taiwan is on their own. And they are not really sure that if this kind of huge defense budget will buy the guarantee of, you know, United States, like, support and also the defense if it comes to the crisis scenario.
I think that is, you know, giving more justification for those who say, let's have a peace approach, like, you know, have the dialog, resume the dialog with Beijing. And that is basically the main theme that is paving the way for KMT chair Cheng [Li-wun]’s visit to Beijing.
Marcrum
Okay. I think we'll pause here for this episode. Join us for part two of this conversation, where we will discuss Cheng Li-wun’s visit to Beijing and how that ties to President Lai’s special defense budget. See you then.