Taiwan Faces Challenges Amid US Pressure

As the incoming Trump administration prepares to take office, Taiwan is bracing itself for increased pressure and reduced patience, particularly regarding defense spending and semiconductor production. The US has called for Taiwan to increase its defense spending from 2.5% to 10% of GDP, citing the need to counter a potential Chinese invasion. However, Taiwan's ability to meet these demands is uncertain due to its limited fiscal capacity and opposition from domestic parties.

The Trump administration's stance on Taiwan is seen as more confrontational than its predecessor, with a focus on semiconductors and defense. Taiwan's defense spending as a proportion of GDP has actually decreased to 2.45%, despite a 7.7% increase in the defense budget. The semiconductor sector is also a source of friction, with Taiwan seeking to maintain its dominant position in chip manufacturing while the US aims to bring more production and jobs back to the US. The Taiwanese government is unlikely to impose strict export controls on chips to China, aside from the most advanced and critical semiconductors, due to concerns about destabilizing the Taiwan Strait and Taiwan's national security.

Taiwan's political instability and fiscal constraints hinder its ability to meet the US's defense spending expectations. To navigate these challenges, Taiwan's leaders must improve political communication, initiate national dialogues with opposition parties, and engage in transparent discussions about defense priorities and timelines. The country's low average tax rate limits its fiscal capacity to increase defense spending, making it difficult to achieve the US's desired levels. As a result, optimism about US-Taiwan relations in 2025 is difficult to sustain, given the significant changes in Taiwan's political environment.

In conclusion, Taiwan faces significant challenges in responding to the incoming Trump administration's demands, particularly regarding defense spending and semiconductor production. The country's ability to manage these new dynamics is uncertain, and its leaders must work to improve communication and initiate national dialogues to navigate these challenges and ensure a stable and secure future for Taiwan.