Should Taiwan Pay $40 Billion Annually for US Defense?

Commentary

On July 16, Bloomberg released the transcript of an interview with former President Donald Trump. Correspondents asked Mr. Trump whether he would defend Taiwan if it were attacked. A U.S. admiral in March testified that communist China will be ready to attack Taiwan by 2027.

Mr. Trump responded that Taiwan should pay what amounts to an insurance premium for U.S. defense guarantees. This answer upholds a past policy of “strategic ambiguity” on Taiwan because Mr. Trump did not directly answer the question. At the same time, Mr. Trump is reasonably attempting to look for new sources of revenue to fund U.S. defense commitments globally. Given that the $33 trillion U.S. national debt is becoming unsustainable, it would be good for the U.S. Treasury to get paid for providing the public good of global security.

President Joe Biden shocked the world in 2022 by repeatedly saying he would defend Taiwan militarily. This increased deterrence of China in the short term but was also a shift away from strategic ambiguity, which incentivizes Taiwan to provide for its own defense in the long term.

Mr. Trump’s return to ambiguity with his Bloomberg interview had immediate results. Taiwan’s foreign minister responded on July 19 that, “In fact, on national defense, we must rely on ourselves—this is the precondition.” In a speech the day prior, European Commission President Ursula von der Leyen also increased her commitment to Taiwan’s deterrence.

Ultimately, it is in the interests of Europe, the United States, and Taiwan to keep the People’s Liberation Army (PLA) from invading.

But who should pay and how much?

According to the U.S. Defense Department, the United States spent approximately 11.3 percent of its GDP on defense in 1953. That helped stop North Korea from expanding South and China from expanding more generally in Asia. During the Taiwan Straits crises of 1954 and 1958, the Chinese regime bombed strategic islands controlled by Taiwan. U.S. intervention helped save the islands and deter the PLA from doing far worse.

From 1954 to 1979, the United States and Taiwan had a mutual defense treaty that helped deter Beijing. Former President Jimmy Carter canceled the treaty to open trade relations with communist China in the hopes of democratizing the country. Now that we know that strategy failed, and deterrence is faltering without a Taiwan treaty, it makes sense to ask whether the treaty should be revived.

Mr. Trump’s proposal to ask Taiwan to pay for U.S. defense would increase deterrence if it moved relations to the point of a formal treaty. Currently, the United States provides Taiwan with $2 billion in defense grants annually, plus an additional $2 billion in military loans. The United States also spends 2.7 percent of GDP on defense, while Taiwan pays only 2.5 percent. Taiwan could spend an additional $4 billion to replace U.S. grants and bring its defense spending to 2.7 percent to match that of the United States. Taipei could then argue from a position of parity that its unlucky geography near China should not mean it must pay more than the United States for defense against a common adversary.

However, U.S. national interest could still lead to a demand for Taiwan to pay “defense premiums.” How much would “defense insurance” be worth to Taiwan? Mr. Trump might ask for at least 5 percent of Taiwan’s GDP. That would be a premium of $40 billion annually. Considering the risk of nuclear war, $40 billion sounds like little. But if used to increase U.S. defense spending, it could actually deter a war.

To put the figure in further perspective, Taiwan currently has approximately $19 billion of defense imports on order from the United States. The Ukraine war has already cost hundreds of billions of dollars and tens of thousands of lives. Russia has made veiled nuclear threats against all countries that aid Ukraine. As a result, United States and allied troops have largely avoided putting boots on the ground.

That raises another question. Would the United States really risk a nuclear war with China as early as 2027, even if Taiwan paid $40 billion a year in defense premiums? Taipei will ask itself this question.

In exchange for its premium, Taiwan might reasonably ask for increased U.S. demonstrations of commitment. These could include the stationing of U.S. troops on Taiwanese soil, the occasional docking of U.S. nuclear missile submarines at Taiwanese ports, and the involvement of Taiwanese officials in U.S. nuclear planning. South Korea asked for all of this and got it in 2023, for example. In exchange, South Korea agreed not to develop its own nuclear weapons. Poland stated in April that it, too, is ready to host NATO nuclear weapons on its soil.

As the above indicates, reviving a defense treaty with Taiwan carries nuclear-level risks. On July 17, Beijing halted nuclear talks with the United States to express its displeasure with increased U.S. arms sales to Taiwan. Meanwhile, Taiwan is modernizing its military, including through an indigenous submarine program that could eventually facilitate an independent Taiwanese nuclear deterrent at sea.

But there are risks to inaction as well. The world is not standing still.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.

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