How Should Taiwan Brace for Trump’s Second Term?

This article was originally published by Global Taiwan Institute in its weekly newsletter, The Global Taiwan Brief, Vol. 10, Issue 2. Used with permission. To get the Global Taiwan Brief in your inbox every week, subscribe at globaltaiwan.org/subscribe. Huynh Tam Sang is a lecturer at Ho Chi Minh City-University of Social Sciences and Humanities, a Young Leaders Program member of the Pacific Forum, a research fellow at the Taiwan NextGen Foundation, and a visiting scholar at National Taiwan University as part of the 2024 Ministry of Foreign Affairs Taiwan Fellowship.

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During the first Trump Administration (2017–2021), ties between the United States and Taiwan were strengthened, as demonstrated by the increase of arms sales from Washington to Taiwan. In June 2017, the Trump Administration approved a USD $1.4 billion arms sale to the island. Later, in October 2018, another arms package valued at USD $330 million received US approval. During Trump’s first four years in office, the US government authorized 11 arms deals with Taiwan, amounting to a total of USD $21 billion.

Nevertheless, the honeymoon phase of the US-Taiwan relationship has concluded. Trump’s “transactional politics” is instigating considerable concern in Taiwan about the reliability of long-term US support. During an interview in late October, Trump accused Taiwan of “stealing America’s chip industry” and threatened to impose tariffs on the island’s semiconductor exports. The newly elected US president also claimed that Taipei should pay for Washington’s protection, likening America to “an insurance company” and asserting that Taiwan “doesn’t give us anything.” Furthermore, Trump insisted that Taiwan should elevate its defense spending to a minimum of 10 percent of its gross domestic product (GDP).

These demands have elicited frustration among Taiwanese officials. Foreign Minister Lin Chia-lung (林佳龍) responded, “Taiwan has been paying the US for its defense for decades,” adding, “To make America great again, you cannot do it without Taiwan.” Meanwhile, Premier Cho Jung-tai (卓榮泰) rejected Trump’s allegations concerning Taiwan’s chip industry, and asserted that “Taiwan developed its semiconductor industry on its own and made itself into a world leader.”

Intriguingly, despite Taiwan’s discontent with Trump’s demands, President Lai Ching-te (賴清德) extended his congratulations to Trump on his return to the White House. Lai also expressed his confidence in the enduring bilateral partnership, “built on shared values and interests,” in a post on X. Taiwan’s nuanced political messaging reveals the crucial role of Washington in supporting Taiwan in the face of China’s aggressive and defiant maneuversacross the Taiwan Strait.

Issues Surrounding Taiwan’s Defense Budget

However, Taiwan’s attempts to accommodate Trump’s transactional style should extend beyond diplomatic moves. Both for the sake of legitimate security concerns and in order to align with Trump’s expectations, Taiwan should increase its defense spending. In August, Lai’s government put forward a defense budget of NTD $647 billion (USD $20.24 billion) for fiscal 2025, representing 2.45 percent of Taiwan’s GDP. Yet, this record defense spending falls far short of Trump’s 10 percent target, and some Republicans contend that reaching 5 percent of GDP in the short term is unlikely.

Hence, Taiwan should boost its defense spending in order to convince Trump that Taiwan is willing to contribute financially to Washington’s support, while also advancing its military modernization objectives. With increased defense spending, Taiwan could expand its “Sea-Air Combat Power Improvement Plan Purchase Special Regulations” (海空戰力提升計畫採購特別條例), which were introduced in 2021. This program centers on expanding missile production, targeting an output of over 1,000 missiles annually by 2026. Boosting missile production capacity for self-sufficiency is paramount. For decades, Taipei has relied significantly on US supplies, but Washington often delivers weapons at a sluggish rate. A case in point is Taiwan’s purchase of 250 Stinger missiles in 2019; after five years, the United States has yet to fulfill the delivery.

Greater self-reliance does not imply that Taiwan should cease purchasing US weapons. Instead, Taiwan should prioritize cost-effective systems that exhibit proven combat effectiveness. The Russia-Ukraine war proves the value of affordable unmanned aerial vehicles (UAVs) in modern warfare, which have proven effective in bombing, kamikaze missions, and decoy purposes. For the time being, Taiwan should expedite its planned acquisition of nearly 1,000 US killer drones, as per contracts signed in October between the Taiwanese army and the American Institute in Taiwan, to bolster its asymmetric combat capabilities.

Mini-submarines are another affordable cost-effective weapon that Taiwan should consider. Strategically, small subs are more effective than larger ones at thwarting potential Chinese landing fleets in the Taiwan Strait’s shallow waters. American mini-submarines such as the Dry Combat Submersible, SEAL Delivery Vehicle, and Advanced SEAL Delivery System could be appealing options. These subs, primarily used by the US Navy Sea, Air, and Land (SEAL) Teams, excel in covert infiltration, reconnaissance, and sabotage missions.

By lifting military expenditure, allocating funds to enhance domestic weapons production, and buying affordable US weaponry, the Lai Administration can avoid being in Trump’s crosshairs, reassure its citizens of its own resolve to defend the island against Chinese pressure, and curtail criticism from political rivals who are leery of excessive and futile defense spending.

Initiatives in Trade Relations and US Investments

Economically, Taiwan should deepen ties with the United States in ways that align with US interests under Trump 2.0. In the semiconductor sector, which is a significant area of interest for Trump, Taiwan Semiconductor Manufacturing Company (TSMC, 台灣積體電路製造股份有限公司) has made strides. Since late 2021, TSMC has built its first manufacturing plant in Arizona, which is showing encouraging initial outcomes: the facility began producing 4-nanometer technology wafers in April. TSMC has also recently reached an agreement with the US Department of Commerce to build two more plants in Arizona.

However, challenges in TSMC’s operations in the southwestern US state could frustrate the president-elect and lead to increased pressure from Washington. Initially, TSMC aimed to commence full production at the first Arizona facility in 2024; however, the target has been postponed to 2025 due to conflicts between Taiwanese managers and American workers, resulting in staff turnover. The second factory, which was initially scheduled for operation in 2026, has also been pushed back to 2027 or 2028. Additionally, Trump voiced his discontent with the Biden Administration’s endorsement of subsidies for TSMC’s Arizona projects, sparking worries that he could impede or restrict the grant distribution, potentially causing further delays in project timelines.

At this juncture, Taiwan should appease Trump by hastening its investment projects and engaging in open dialogues to address tensions with American workers. It is essential for Taiwan to consent to the transfer of certain advanced manufacturing technologies to the United States, including 4-nanometer chips, which were slated for production at TSMC’s first Arizona plant. Doing so is crucial to easing tensions with Washington, as US Secretary of Commerce Gina Raimondo has expressed concerns that over 90 percent of advanced chips used in the country are manufactured in Taiwan, leading to vulnerability and insecurity for Washington. Fostering ties between the United States and Taiwan in the semiconductor industry would provide Trump with the optics that manufacturing jobs, which he sees as essential to American prosperity, are being brought back to the country.

In addition to semiconductors, the Lai Administration should work towards maintaining the Trump Administration’s commitment to the US-Taiwan Initiative on 21st Century Trade, launched in 2022, which covers at least 11 areas of negotiation. In June 2023, agreementswere reached in four areas: customs administration, regulatory practices, anti-corruption, and small and medium-sized enterprises. In 2024, the second round of negotiations focused on agriculture, environment, and labor. As Trump’s presidency could stall the path towards a comprehensive trade agreement, Taiwan’s government should underscore the significance of the agreement by intensifying lobbying efforts to showcase the tangible benefits of a trade deal to American communities and businesses—a strategy to garner grassroots support within US society. Also, Taipei should frame the deal as a means of enhancing cross-border financial and trade flows, thus allowing Taiwan to greatly increase its investments across US states. Overall, leveraging the influence of governors and lobbying groups can effectively impact federal decision-making.

Another pragmatic approach for Taiwan would be to win over US businesses by offering additional tariff incentives or streamlining market entry procedures, making sure these measures resonate with Trump’s focus on maximizing American economic gains. Taipei may consider easing tensions with Elon Musk, Trump’s confidant, to facilitate the entry of Starlink (space technology company SpaceX’s satellite system) into Taiwan’s market. Previous negotiations failed because SpaceX rejected Taiwan’s demand to form a joint venture and allocate a majority stake to a local enterprise. Recently, there have been reports indicating that SpaceX has asked its suppliers to relocate factories out of Taiwan due to geopolitical risks. Now the Taiwanese government should resume negotiations with SpaceX and address disputes with Musk, while diversifying its production with international satellite companies.

Navigating ties with the United States under Trump’s 2.0 presidency will be tough. But the Lai Administration may find some opportunities to align with Trump’s transactional worldview, particularly through the defense and economic suggestions detailed above. Given Trump’s unpredictability on foreign policy decisions, the democratic island must adeptly adapt its strategies to uphold flexibility while bolstering its defense deterrence and economic resilience. But even facing pressure from Trump, Taiwan should be prudent to steer clear of excessive concessions that could weaken its bargaining position and jeopardize its long-term stability.

The main point: Facing vagaries tied to Trump’s outlook on foreign policy, Taiwan should increase its defense budget and pursue economic measures that promote mutual benefit and long-term engagement.

(Featured photo by Rosemary Ketchum on Pexels)