How Silicon Valley looks at the Taiwan miracle (4): Boosting defense budget?

Colley Hwang, DIGITIMES Asia, Taipei 0


Most people don't think China will attack Taiwan in the next two years, but many believe the next 3-5 years during the third term of Chinese president Xi Jinping will be a high-risk period. But is Taiwan ready? Taiwan's annual defense spending is about US$19 billion, or 2.4% of its GDP, and some suggest it be increased to US$40 billion in the next five years, or about 5% of the GDP.

We all have different ideas of the possibility and methods of China's invasion. Xu Chenggang, a well-known economist from China, noted during a Silicon Valley event that many people think that the war between Russia and Ukraine provides a model for China's invasion of Taiwan, but he believes that China has its own experience to rely on: the Chinese Communist Party used to simply rework its old strategies, using new tools to implement the old patterns.

A lot of speculation about China's invasion of Taiwan has put its focus on using new tools such as aircraft carriers. But what if China uses fishing boats and ferries instead? Would it significantly change the mode of warfare in the Taiwan Strait? Emulating the Russia-Ukraine war would carry a lot of risks, and it is not necessarily the model that China would adopt.

In order to strengthen Taiwan's self-defense, we can make good use of Taiwan's strong manufacturing capabilities. Many people have called for technology transfer to be included in Taiwan's weapon procurement and the adoption of a co-production model: Taiwan has the capability of making submarines and missiles. During the Vietnam War, the US and Taiwan had many similar cooperation projects. But this time round, it is something unheard of for the US to work with a country with which it has no diplomatic ties against another country which is challenging the US dominance in the Pacific. Taiwan is at the first line of action, but does Taiwan have no alternatives?

For a small country at the crossroads, its defense spending would never be sufficient. The key is not necessarily military power, or who Taiwan is siding with; instead it must become a third side that both of the other two need, increase its bargaining chips and create more value of its own. Small countries are flexible, and that's Taiwan's advantage, isn't it?

Finally, if Taiwan's Internet access is blocked, low-Earth-orbit (LEO) satellites are certainly an important option. But how can social strengths be enlisted to enhance the development of related industries? Taiwan is not only under-investing in national defense; there have been lots of talks about digital transformation, but I haven't seen any government bodies making bold steps towards that direction. The newly established Ministry of Digital Affairs seems to have a relatively large budget, but problems had already surfaced even before it started work.

Taiwan's tax burden is very low, and in 2021 the government collected an additional NT$800 billion (US$25.85 billion) in tax revenue. Any spending on forward-looking investments should be encouraged. In this new era, Taiwan needs a more capable government.

(Editor's note: This is part of a series of articles DIGITIMES Asia president Colley Hwang wrote about his observations during a recent trip to Silicon Valley.)

Colley Hwang, president of DIGITIMES Asia, is a tech industry analyst with more than three decades of experience under his belt. He has written several books about the trends and developments of the tech industry, including Asian Edge: On the Frontline of the ICT World published in 2019, and Disconnected ICT Supply Chain: New Power Plays Unfolding published in 2020.