Lai Ching-te is the president. Tsai Ing-wen was his predecessor. The legislature is dominated by the Kuomintang (KMT) and the Taiwan People's Party, a populist party that appeals to young people. Lai's Democratic Progressive Party (DPP) disavows even the notional goal of reunification with China.
The DPP has thrown its support behind a mass campaign to recall KMT legislators. The KMT's legislative leader, Fu Kun-chi, led a delegation to Beijing in 2024 to meet Wang Huning, the number four in the Communist Party who is in charge of policy on Taiwan. Upon their return, KMT legislators adopted a law expanding parliament's powers at the expense of the president. When parts were ruled unconstitutional, they passed another law that paralysed the constitutional court. In January 2025 they made sweeping cuts to the budget, including defence, the coastguard and cyber-security. Taiwan's prime minister called the cuts "suicidal".
Lai's approval rate had dropped to 46% from 58% at his inauguration a year earlier. According to the Taiwan Public Opinion Foundation, 60% of Taiwanese think America is not trustworthy under Trump. More than 80% want to keep the "status quo", but only about 20% think that is possible in the long run, according to Wu Jieh-min of Academia Sinica. Only about 4% support unification, but about 30% expect Taiwan will end up "being unified by mainland China", 8% more than in 2020. A poll by the Brookings Institution finds a plurality think America would not intervene in a China-Taiwan war.
Many young voters think the DPP exploits fear of China while neglecting everyday problems like unaffordable housing and low wages.
In April 2026 Cheng Li-wun, chairwoman of the KMT, made a six-day visit to China—the first by a KMT leader in a decade—and met Xi Jinping in Beijing. She re-affirmed the 1992 consensus, described Taiwanese people as part of the Chinese nation and blamed Japan for splitting Taiwan from the mainland. A poll conducted in March showed 56% of Taiwanese thought the drawbacks of the meeting outweighed the advantages. The visit exposed a deepening factional rift within the KMT between a China-leaning faction under Ms Cheng and an America-leaning faction led by Lu Shiow-yen, mayor of Taichung. Taiwan's government warned the KMT not to fall for China's "divide-and-rule strategy", saying that accepting China's political narratives would deepen domestic divisions and "send the wrong message to the international community". Opinion polls consistently show a majority of Taiwanese distrust China's government, have little appetite for unification and consider themselves Taiwanese rather than Chinese.
Taiwan is cultivating a domestic drone industry to supply its own armed forces and capitalise on other countries' distrust of China. President Lai has called Taiwan the "Asian hub of UAV supply chains for global democracies".
The drone ambitions began in 2022, when then-president Tsai Ing-wen saw the asymmetric advantage that drones gave Ukraine against Russia. Since 2022 the government has built a new drone-research centre, subsidised local companies to develop AI imaging chips and flight controllers, and awarded $210m in drone-procurement contracts. Taiwan pledged $1.4bn to close gaps in flight-control, positioning and communication chips for drones. It aims for annual output of 180,000 units by 2028 and has pledged to buy more than 200,000 drones for its own armed forces by 2033. In late 2024 it signed a deal to buy nearly 1,000 small attack drones from America.
Production increased from about 10,000 units in 2024 to more than 120,000 in 2025. Exports rose more than 35-fold to about 123,000 units in 2025—almost all output. The Czech Republic was the biggest buyer, followed by Poland; industry insiders say their purchases mostly went to Ukraine. In the first two months of 2026, exports reached 85,500 units. Taiwan has pledged to build an entirely non-red UAV industry by the end of 2026: complete UAVs and modules representing a cyber risk had to be free of Chinese parts by the start of 2026; passive components including optical lenses and rare-earth magnets must be gone by January 2027. By 2029 Taiwan aims to produce half the rare-earth magnets it needs.
China controls 70-80% of global UAV production. Non-red drones made by Taiwanese firms such as Coretronic cost about 25% more than their Chinese equivalents. Kunway Technology, which started producing agricultural drones in 2016, now exports "kamikaze" quadcopters to Ukraine via Poland; its bigger model carries bombs of up to 8kg at 140kph. It sources all components locally or from friendly countries such as Japan, having phased out the 40% share it once bought from China. Thunder Tiger is in talks about building a factory in Poland and plans to start making drone motors in Ohio; it already supplies parts to three of 25 firms shortlisted for a Pentagon programme to buy cheap one-way attack UAVs.
America has banned the use of Chinese drones by its armed forces and federal agencies. Since December 2025 it has also banned imports of new foreign-made models and components, including those from DJI, China's biggest drone-maker, while allowing defence and homeland-security departments to apply for exemptions. Taiwan's bid to embed itself in Western drone supply chains is also a hedging strategy in case America waters down security commitments to the island.
Taiwan aims to more than double foreign student arrivals to 320,000 by 2030. It is offering more English-language courses and making it easier for students to work after graduating. Through its "New Southbound Policy", Taiwan targets students from South-East and South Asia to build stronger ties with its neighbours.
Taiwan was under Japanese rule from 1895 to 1945; at the end of the second world war China resumed control. After China's civil war ended in 1949, the defeated Nationalist government took refuge on the island. Taipei is the capital. Kaohsiung is the island's biggest port, handling 57% of Taiwan's maritime trade.
In November 2025 Takaichi Sanae, Japan's prime minister, told the Diet that force used against Taiwan could prompt Japan to exercise "collective self-defence"—the first sitting Japanese prime minister to state this explicitly. Xi Jinping's 2027 deadline for China's forces to be capable of taking Taiwan is fast approaching; Japanese involvement in a conflict could make the task far harder.
In May 2026, after Donald Trump's two-day visit to Beijing, the president questioned America's 44-year commitment (under a 1982 promise by Ronald Reagan) not to negotiate with China over arms sales to Taiwan and said he had discussed a $13bn Taiwan arms package "in great detail" with Xi Jinping, describing it as a "very good negotiating chip". Trump suggested he might talk directly to "the person who's running Taiwan"—there has been no direct contact between sitting American and Taiwanese leaders since 1979. After months of wrangling, Taiwan's parliament passed a supplementary defence budget of about $25bn to fund both the December 2025 ($11bn) and the new ($13bn) arms packages.
A rare set of three surveys in 2024-25 by the Carter Centre asked 6,500 Chinese people about international affairs. Support for forced unification of China and Taiwan rose from 25% in 2024 to almost half by late 2025; opposition fell from more than 50% to 38%. Of all their neighbours, Chinese feel most warmly about Taiwan, in line with state narratives that the Taiwanese are "family". Only a minority see Taiwan's computer-chip business as an important reason for unification. A series of events in 2025, including a big American arms deal with Taiwan and comments by Japan's prime minister, probably contributed to the rising hawkishness.
On March 18th 2026 America's Annual Threat Assessment stated that "Chinese leaders do not currently plan to execute an invasion of Taiwan in 2027." The phrase was striking because American officials had warned for years that Xi Jinping had ordered his armed forces to be ready to attack Taiwan by 2027—a timeline known as the "Davidson window" after Admiral Philip Davidson first mentioned it in a Senate hearing in 2021. Close PLA-watchers see the deadline more as an attempt by Xi to inject urgency into military modernisation ahead of the armed forces' centenary in 2027. The period of greater concern is now 2028-32: between America's and Taiwan's next presidential elections and the expected end of Xi's fourth term, when he will be 79 and perhaps impatient for progress.
The Iran war has complicated the picture. America has already transferred military assets from the Indo-Pacific to the Middle East and used up weapons needed to defend Taiwan. Ely Ratner, the Pentagon's top Asia official in the Biden administration, said the risk of a move on Taiwan is "more possible today than it was two months ago" and that "the risk in the medium term is going up substantially." Xi has purged five of the six generals he appointed in 2022 to the Central Military Commission, which now consists of just Xi and a single general responsible for corruption investigations; by 2028 his new military leadership should be in place. Taiwan plans to build a new missile-defence system by 2033. Wellington Koo, Taiwan's defence minister, said on March 20th 2026 that without such plans "the likelihood of an attack would rise".
Chinese sorties into Taiwan's air-defence identification zone, a self-declared buffer area, increased from 20 or fewer in 2019 to more than 3,000 in 2024, according to a tally kept by the Centre for Strategic and International Studies. The gradual encirclement of the island with ever bolder and more frequent military exercises appears intended in part to sap the morale of ordinary Taiwanese and make eventual absorption into China seem inevitable.
China has been planning "decapitation" strikes on Taiwan's leadership for years, a focus that intensified after the success of Volodymyr Zelensky in rallying resistance to Russia's invasion of Ukraine. The PLA built a mock-up of Taiwan's presidential palace in the desert in northern China, revealed on Chinese state television in 2015; the training site has tripled in size since 2020, with models of other ministries added, according to satellite images obtained by a Japanese think-tank. Decapitation drills have been included in China's military exercises around Taiwan, including the latest in late December 2025. Taiwan's armed forces have protocols for various types of Chinese aggression, including the Wan Chun plan to protect the president, details of which are secret.
Venezuela's Chinese-made JY-27 air-surveillance radars, described by their manufacturer as jam-resistant and claimed by Chinese state media to be able to detect stealth aircraft including America's F-22, appeared to have failed during America's raid on Caracas in January 2026. Though the failure may have been due to poor maintenance, operator error or sabotage, any weakness could affect China's perception of its own vulnerability in a Taiwan conflict, as versions of the same radars protect the mainland.
A new conscription policy came into effect in 2024, extending the term from four months to 12.
Taiwan's defence planning has long been built on a single calculation: if the island can resist Chinese invasion forces for a month, America will have time to intervene and Communist Party leaders in Beijing can be deterred. Growing doubt that America would arrive at all—fuelled by Trump's treatment of Ukraine and his scorn for Taiwan's prospects in a fight with China—is now reshaping that planning. The sitting government's strategy is to hold on as long as possible while China's legitimacy is challenged and the international community has time to help.
Under Tsai Ing-wen (president 2016–24), resilience planning was kept secret to avoid alarming the public and foreign investors. Lai Ching-te has chaired meetings about resilience and live-streamed them, hoping to educate a society riven by partisan divisions. Civilian resilience efforts include stockpiling food, water, medicines and energy, and "whole of society" training drills. Israel and Finland have both welcomed Taiwanese fact-finding missions on civil defence. Green groups that once clamoured for ageing nuclear power plants to be shut down have become more open to arguments about national security and the risks of heavy reliance on imported fossil fuels.
The Kuma Academy, a non-governmental organisation founded in 2021, teaches civilian defence including information warfare and evacuation planning; increasing numbers of Taiwanese are signing up for its workshops.
Promoting civilian resilience also serves as a diplomatic play, allowing friendly powers to help Taiwan without arms sales that would enrage China. Other Western countries want to learn from Taiwan's expertise in fighting off Chinese cyber-attacks and disinformation campaigns.
Jaushieh Joseph Wu, head of Taiwan's national security council and a former foreign minister, addressed the Taiwan Trilateral Forum in Berlin in June 2025—a meeting of diplomats and analysts from America, Europe and Taiwan organised by the German Marshall Fund. Wu pledged that Taiwan will spend more on defence but will "not be a provocateur". The new German government risked China's wrath by allowing Wu to speak.
Taiwan imported about 96% of its energy in 2024, including virtually all liquefied natural gas, which accounted for about 42% of electricity generation. Minimum LNG stocks will increase from 11 days of consumption in 2025 to 14 days by 2027. The government had been phasing out its last nuclear power plant, but on March 27th 2026 Taiwan's state energy company announced plans to restart a nuclear power plant, reversing course as the Iran war disrupted energy supplies.
Taiwan imported about 70% of the calories its people ate in 2023, but is largely self-sufficient in rice, vegetables, fruit and seafood. It has stockpiled about seven months' worth of rice and 12 months of meat.
Taiwan has 14 international undersea communication cables, which are vulnerable. In April 2025 the Chinese captain of a cargo ship was charged with deliberately dragging his anchor to cut a cable. Taiwan is exploring microwave, satellite and balloon-based alternatives, though none can match undersea capacity. Starlink has been ruled out owing to regulatory obstacles and concern that Elon Musk is partial to China. Indigenous satellites are making slow progress.
By late 2025, Taiwan was starting to hedge against the risk that America makes a strategic "grand bargain" with China at the island's expense. Trump had hit Taiwan with steeper tariffs than Japan and South Korea, put off planned stopovers in America by President Lai, and initially failed to approve new arms sales. In December 2025 America agreed a record $11.1bn arms package for Taiwan. Most China hawks had been purged from his administration, replaced by isolationists.
In 2022 Taiwan agreed to buy around 100 PAC-3 MSE missiles (the most advanced Patriot interceptors), with delivery expected in 2025 and 2026. It has also ordered NASAMS interceptors and HIMARS rocket launchers. Many of these purchases aim to bolster Taiwan's defences by 2027—the year by which American officials believe China's president has ordered his armed forces to be ready to attack or blockade Taiwan. In March 2026 Taiwan's government worried that the Iran war might delay the arrival of these weapons, especially types America and Israel are using in the Middle East. Any delay would affect military planning and could badly damage the public's morale.
Lai's October 10th national-day address was notably restrained on mainland China, apparently to avoid disrupting Trump's trade talks with Xi Jinping. He also appeared on a popular American right-wing radio show, touting his defence plans and suggesting Trump should win a Nobel peace prize if he got Xi to abandon the use of force against Taiwan.
Taiwan has been quietly boosting defence ties with partners other than America, focusing on drones and asymmetric capabilities, with particular outreach to Europe. At Taiwan's biggest defence show in September 2025, European governments and companies were better represented than usual: Germany's trade office in Taipei took part for the first time, showcasing four German firms; Airbus showed off a tactical aerial drone. In Poland that same month, a Taiwanese defence-industry delegation agreed with Polish and Ukrainian counterparts to co-operate in manufacturing aerial drones. Taiwan offers an alternative supply of high-tech electronic components for countries trying to become less reliant on China in the defence sector; in exchange it seeks technology and expertise to build its own capabilities.
Since Lai Ching-te launched a crackdown on Chinese infiltration in March 2025, espionage prosecutions in Taiwan's courts have quadrupled over four years and at least five members of the DPP, including a former aide of the president, have been put under investigation for spying.
Taiwan faces a 32% American tariff under Trump's "reciprocal" levies. In 2024 Trump said that if China tried to invade Taiwan he would impose tariffs of "150% to 200%"—but tariffs on China reached 145% in April 2025 over trade, arguably expending that threat.
Defence spending was 2.5% of GDP in 2024. In his national-day address on October 10th 2025, President Lai vowed to increase it to more than 3% of GDP in 2026 and to 5% by 2030. He also unveiled plans to build an air-defence system called "T-Dome" over Taiwan and pledged a "special defence budget" later in the year, worth as much as $33bn, much of which could be spent on American weapons. The branding of "T-Dome" was meant to encourage comparisons to Trump's "Golden Dome" missile-defence system. Trump has demanded that Taiwan increase defence spending to 10% of GDP. Cheng Li-wun, chosen as the KMT's new leader on October 18th, opposes boosting the defence budget. The opposition-controlled parliament has not agreed to defence increases.
Output per person is higher than Australia, Germany or Japan after adjusting for the cost of living, yet Taiwan has the world's most undervalued currency. GDP per person exceeds $33,000, but prices of goods and services are only 42% of America's when converted into dollars—Taiwan has the cheapest McDonald's burgers of all the countries tracked by The Economist's Big Mac Index. Adjusted for relative wealth, the Taiwan dollar is 55% undervalued, the most of all 53 currencies The Economist tracks. William Cline of the Peterson Institute for International Economics has found that since 2008 the Taiwan dollar has been on average 24% weaker than the level which would keep the current-account surplus below 3% of GDP.
Exports of chips and servers soared by 300% over the five years to late 2025. The current-account surplus swelled to 16% of GDP, up from 10% in the 2010s. In October 2025 Taiwan's monthly goods-trade surplus reached a record $22.6bn, or 31% of GDP at an annualised rate. Exports of integrated circuits more than doubled over the decade to 2025, yet the Taiwanese dollar remained remarkably stable at around NT$31-32 to the American dollar from 2015 to the end of April 2025.
Taiwan's gross national savings rate is 39% of GDP, far above the rich-world average of 22% and close to China's (42%). The flipside is low consumption: private consumption has fallen by 20 percentage points as a share of GDP since 1998, to 45%—close to China's level and far below the rich-world average of 60%.
The Central Bank of the Republic of China (CBC) has for decades suppressed the value of the Taiwan dollar by printing and selling it to buy American dollars, keeping exports competitive but generating large distortions. Foreign-currency reserves grew from $90bn (32% of GDP) in 1998 to $600bn (72% of GDP). America has twice declared Taiwan a currency manipulator. The CBC's transfers of profits to the government made up 6% of all government revenue in 2023 (the rich-world average is 0.4%).
The CBC's role is rooted in Taiwan's political history. After China's nationalist rulers retreated to Taiwan in 1949, they imposed martial law (not lifted until 1987). The CBC became part of the KMT autocracy. Taiwan is not a member of the IMF, owing to China's diplomatic isolation—a vulnerability the CBC cites to justify reserve accumulation. Perng Fai-nan was governor from 1998 to 2018; his hand-picked successor, Yang Chin-long, has continued the same approach. The central bank has faced criticism from domestic economists for behaving "like that of a less developed country" in its hostility to scrutiny.
Labour productivity has doubled since 1998, yet pay has not risen in tandem. Unit labour costs—a measure of what workers earn per unit of output—fell by 25% over the same period. Keeping the currency weak subsidises exporters at the expense of importers. In Taiwan, where the vast majority of both food and fuel is imported, this acts as a transfer from poor households to the owners and employees of exporting firms.
The CBC's policies have pumped up property prices. Cheap Taiwan dollars have pushed down interest rates: banks have lent to home-buyers at an average rate of just 2% since the mid-2000s (the average rate in 1998 was 8%). House prices are more than four times higher than in 1998. The median house-price-to-income ratio in Taipei is 16, higher than for London, New York or Seoul.
Taiwan's government, with gross debt of just 23% of GDP, has fiscal room to cushion economic transitions. Half of exports by listed Taiwanese manufacturers could be rendered unprofitable by a 10% rise in the currency, according to Goldman Sachs. Low-tech firms account for about 70% of jobs in manufacturing and compete primarily on price, making a cheap currency a near-existential need.
Life insurance is extremely popular in Taiwan: the average person holds more than two policies. The insurers plough household savings into foreign assets, mostly American Treasury bonds. Since 2012 their share of Taiwan's foreign holdings has doubled to 31%, whereas the CBC's slice has halved, to 19%.
Taiwanese insurers have made $960bn of promises to savers, backed by $700bn in higher-return foreign (principally American) assets—an alarming currency mismatch, with an estimated $200bn in unhedged risk (about a quarter of GDP). A sharp appreciation of the Taiwan dollar could leave the insurers insolvent; they have become too big to fail.
In early May 2025 the Taiwan dollar strengthened by as much as 5% in a single day—the largest move since the 1980s—after exporters began converting dollar earnings and life insurers rushed to hedge their exposure.
TSMC, a Taiwanese firm, produces roughly 90% of the world's most advanced semiconductors on the island. Some Taiwanese see this as a "silicon shield" protecting them from coercion. Just 7% of TSMC's net sales are to Chinese firms, compared with 77% to firms in North America. A chip shortage in 2021 is thought to have led to $500bn in forgone sales globally.
Around 900,000 passport-holders from South-East Asia live and work in Taiwan, accounting for 90% of foreign citizens. The Philippines alone has 175,000 citizens there.
A 2025 paper by the Centre for a New American Security (CNAS) examined which countries would enter a war if China invaded Taiwan. If America stayed out, everyone else would too. If America stepped in, Japan and the Philippines would be most affected but reluctant; South Korea's first concern would be deterring North Korea; Australia has not formally pledged to join but officials acknowledge AUKUS could be in jeopardy if they stayed out; India would focus on its land border with China. Most of South-East Asia would attempt neutrality.
Taiwan's ports handled over $500bn of trade in 2022, including trans-shipments. The Taiwan Strait, the 180km-wide channel separating Taiwan from China, carries around half the world's container fleet each year, including nearly all of its biggest ships. In 2022 Rhodium Group, a research firm, estimated the direct cost of a full blockade to the world economy at over $2trn.
When I sell liquor, it's called bootlegging; when my patrons serve it on silver trays on Lake Shore Drive, it's called hospitality.