CLSC Dialogues – Ep 27 – COL Kyle Marcrum and Dr. Jessica Liao – Taiwan’s Special Defense Budget and KMT Trip to Beijing, Part 1

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.

Keywords: Taiwan, defense, budget

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 wa...