Taiwan’s Legislative Yuan passed a special defense budget on May 8, removing previously allocated funding for unmanned systems and drawing domestic and international attention to the future of Taiwan’s drone industry. This week, DSET’s policy analyst Cathy Fang published an op-ed in The Diplomat examining how the budget cuts could affect Taiwan’s drone development from three perspectives: international markets, defense preparedness, and global supply chain integration.
Fang noted that while the opposition-backed “Special Act for Strengthening National Security and Asymmetric Defense Capabilities Procurement” emphasized the importance of “asymmetric warfare,” it simultaneously reduced funding for domestically produced unmanned systems — creating a contradiction between policy goals and actual defense needs. Fang further analyzed that even if the funding were eventually restored through the annual central government budget, the Legislative Yuan would likely not complete deliberations until February 2027 at the earliest, delaying the Armaments Bureau’s tender process for nearly 50,000 drones. Such delays could result in an almost two-year procurement standstill, placing additional pressure on Taiwan’s drone industry and supply chain stability.
From an industrial perspective, Fang argued that the procurement slowdown would directly affect orders for Taiwanese manufacturers. Although Taiwan maintains strong advantages in information and communications technology (ICT), electronics, precision manufacturing, and advanced materials, drones produced in Taiwan still cost two to three times more than those made in China. At the same time, Taiwan’s annual drone production capacity has grown significantly — from fewer than 10,000 units in 2024 to 123,000 units in 2025 — but remains short of government targets, including producing 180,000 drones annually by 2028 and establishing a fully China-independent supply chain by 2027. In addition, Taiwan’s current exports remain largely concentrated in small commercial drones, while military-grade unmanned systems continue to rely heavily on the United States Foreign Military Sales (FMS) framework.
Fang emphasized that many of these industrial bottlenecks could have been gradually addressed through stable domestic procurement demand and clear policy signals. However, the removal of funding from the special defense budget risks further raising barriers for Taiwan’s drone industry to enter international markets.
On defense preparedness, Fang argued that asymmetric warfare is fundamentally a war of attrition, yet Taiwan currently faces significant shortcomings in drone quantity, operational capabilities, and sustained resupply capacity. According to DSET research, Taiwan’s military currently possesses fewer than 10,000 combat-capable drones, while domestically developed systems generally have operational ranges of under 50 kilometers. Fang also cited the Center for a New American Security (CNAS) report “Hellscape for Taiwan
:Rethinking Asymmetric Defense”, which argues that a credible layered drone defense system would require deployments at distances of 40 to 80 kilometers offshore, while long-range strike capabilities would need to exceed 100 kilometers.
Fang stated that when a defense force possesses weapon systems far below the scale of a potential adversary, and its domestically produced drones are unable to effectively cover operational zones, the erosion of deterrence is no longer a future risk, but an urgent and immediate reality.
Regarding supply chain integration, Fang stressed that if Taiwan fails to establish international partnerships early, the strategic consequences may become difficult to reverse. She noted that Taiwan holds dual advantages within the democratic drone ecosystem: it can serve as a trusted alternative supplier outside China, while also possessing deep expertise in edge computing and computer vision technologies critical to unmanned systems. However, a prolonged two-year procurement freeze would not merely delay development — it could also cost Taiwan the opportunity to secure a strategic position in the global restructuring of unmanned systems supply chains over the coming decade.
Fang further argued that Taiwan’s current domestic political deadlock only underscores the strategic importance of deepening cooperation with allies. The U.S. Department of Defense is expected to release implementation plans in June under the Fiscal Year 2026 National Defense Authorization Act (NDAA), establishing a legal framework for joint U.S.-Taiwan research, development, and production of drone and counter-drone systems. In addition, the bipartisan “Taiwan Blue Sky Act of 2026,” if passed, could accelerate Blue UAS certification processes and help Taiwan establish a stronger position within China-independent supply chains.
Beyond the United States, Fang also noted that Europe could play an important role in supply chain integration and institutional cooperation, while Ukraine — with its extensive battlefield experience — could provide valuable collaboration opportunities in tactical applications and joint production. Together, these partnerships could significantly strengthen Taiwan’s drone industry and defense capabilities.
The Diplomat is an English-language international affairs publication focused on geopolitics, defense, economics, and society across the Indo-Pacific region. Its reporting and commentary are frequently cited by Taiwan government agencies, the Ministry of Foreign Affairs, and Taiwan’s overseas representative offices as part of international policy communication and strategic analysis.
