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Taiwan cuts defence and technology budget in economic reshuffle

Taiwan is facing potential budget cuts that could significantly impact its defence and technology sectors.

Recent legislative changes, driven by opposition parties, have mandated a reallocation of funds from the central government to local municipalities. This shift may necessitate a considerable reduction in the central government’s budget, affecting key areas such as defence and technological development.

Impact on defence sector

Taiwan is facing potential budget cuts that could significantly impact its national defence capabilities. The reallocation of funds from the central government to local municipalities could result in a 28% reduction in the central government’s budget, which would affect critical areas such as military procurement, training, and cybersecurity.

One of the primary consequences of these cuts would be delays to procurement and the upgrading of weapon systems. Taiwan has been investing in modernising its defence capabilities to deter potential aggression from China. However, with a reduced budget, critical defence projects would face delays or cancellations. These include upgrades to F-16 fighter jets, the indigenous submarine programme, and the purchase of advanced missile systems. The inability to maintain its military hardware would leave Taiwan more vulnerable to a large-scale attack.

Another significant impact would be a reduction in military training and readiness. Budget cuts could result in fewer and less frequent military drills. Taiwan regularly conducts exercises to simulate invasion scenarios from China, and a reduction in these activities would weaken troop readiness and coordination between different branches of the military. This reduction in preparedness would make Taiwan less capable of responding to real-world conflicts.

In addition to reduced training, logistics and maintenance shortfalls would also be a consequence of the spending cuts. A smaller budget would mean fewer resources to maintain and repair military equipment. Delays in maintaining fighter jets could ground a portion of Taiwan’s air force, while the navy would face challenges in keeping its fleet operational, particularly submarines and missile boats. These shortfalls would reduce Taiwan’s overall defence readiness and increase the potential for obsolescence.

The budget cuts could also impact Taiwan’s defence partnerships with key allies, including the United States, Japan, and Australia. Reduced funding may create doubts about Taiwan’s ability to fulfil contracts or participate in joint defence initiatives. This could deter future arms deals and limit Taiwan’s access to cutting-edge defence technologies. As a result, Taiwan’s ability to strengthen its defence through international collaboration would be weakened.

Morale and recruitment within Taiwan’s armed forces would also be negatively affected. A reduction in defence spending could lead soldiers to feel that the government is not committed to national security, which would lower troop morale. Additionally, the cuts could make it more challenging to attract and retain skilled personnel, further weakening Taiwan’s military capabilities.

Another critical area at risk is cybersecurity. Given the frequent cyberattacks from China, Taiwan has placed a strong emphasis on cybersecurity. However, cuts to cybersecurity funding could make the country more vulnerable to sophisticated attacks on critical infrastructure, compromising national security.

Finally, the cuts could undermine Taiwan’s asymmetric defence strategy. This strategy focuses on using smaller, mobile, and cost-effective systems to counter a larger adversary, such as China. Without sufficient funding, Taiwan may struggle to fully implement this approach, weakening its ability to counterbalance China’s military advantage.

Impact on technology sector

The potential budget cuts would also have far-reaching consequences for Taiwan’s technology sector. The country’s leadership in semiconductors, artificial intelligence, and emerging technologies like quantum computing could be jeopardised by reduced government funding.

Taiwan’s semiconductor industry, which includes major players such as TSMC, is a critical part of the country’s economy. The proposed cuts could reduce research and development budgets, delaying the progress of advanced nodes such as 3nm and 2nm chips. The delay in expansion plans and equipment upgrades would hinder Taiwan’s ability to maintain its global leadership in semiconductor manufacturing. As other countries, including the United States and South Korea, increase their investments in semiconductor technology, Taiwan risks falling behind at a time when many new fabrication facilities are popping up.

Artificial intelligence development and digital transformation are other areas that would be affected by the budget cuts. Taiwan has been positioning itself as a hub for AI innovation, but reduced funding could slow progress. The cuts would likely impact government-backed grants and accelerator programmes, reducing support for AI start-ups. This would also slow the adoption of AI in industries such as manufacturing, healthcare, and finance. As a result, Taiwan’s competitiveness in the global AI supply chain, particularly in producing AI chips, could weaken.

Emerging technologies, including quantum computing, 5G, and 6G, would also face setbacks. Government-funded research projects in these fields could be delayed or cancelled due to reduced budgets. Taiwan has made significant progress in these areas, but without sustained funding, the country risks falling behind in technological advancements that will shape the next decade of innovation.

The cuts could also impact Taiwan’s international collaborations with major global tech companies such as AMD, Nvidia, and Micron. These partnerships rely on co-investment from the government, and reduced funding could disrupt ongoing projects. If Taiwan is seen as a less reliable partner, it could lose its reputation as a key player in the global tech ecosystem.

Aerospace and space technology are other sectors that would be affected. Taiwan has been investing in satellite projects and other space-related technologies to diversify its tech sector. Budget cuts could delay the development and launch of these projects, reducing Taiwan’s potential to become a significant player in the growing global space industry. Additionally, fewer investments in space start-ups would hinder innovation in this sector.

University research and talent development would also suffer from the proposed budget cuts. The government provides research funding to universities to drive innovation and build a skilled workforce. Cuts to research grants and scholarships would hinder the development of future tech leaders, creating a talent shortage in critical fields. This could lead to a brain drain, with talented individuals seeking opportunities abroad.

The start-up ecosystem in Taiwan would also feel the effects of reduced government support. The government plays a key role in providing grants and incentives for start-ups. Budget cuts would reduce access to seed funding and could impact the operation of incubators and accelerators. This would shrink Taiwan’s innovation ecosystem, reducing its influence in areas such as artificial intelligence, the Internet of Things, and cybersecurity.

Overall, the proposed budget cuts pose significant risks to both Taiwan’s defence and technology sectors. These reductions would weaken military readiness, delay technological advancements, and undermine Taiwan’s position as a key player in the global tech industry.