In previous articles, I proposed a model for Taiwan’s arms industry, since a key component of President Tsai’s policy is to revitalize Taiwan’s economy by growing its national defense industry as one of five innovative industries. It is not a leap of the imagination to picture Taiwan as a significant arms exporter, since it already manufactures its own modern naval vessels, missiles, and small arms. Furthermore, it would be following in the footsteps of its neighbors South Korea, Singapore, Japan, and many other countries in pursuing arms sales abroad. But who will Taiwan’s consumers be?
There are three potential markets for Taiwan’s weapons: first, the United States and NATO+4 countries; second, Taiwan’s current diplomatic allies; and third, all other countries, if Taiwan establishes an arms export presence at military conventions. It is widely known that the United States sells advanced military technology to Taiwan in accordance with the Taiwan Relations Act; but the United States and NATO+4 countries (comprised of NATO countries in Europe plus Japan, South Korea, Australia, New Zealand) and others would benefit if they could buy items from Taiwan that Taiwan can manufacture better and more cheaply. It is a classic example of David Ricardo’s economic theory of comparative advantage, except with the ammunition and high-tech electronics components of today, instead of Ricardo’s cloth and wine of 1817.
The United States is already Taiwan’s customer. In 2007, the US military purchased one billion rounds of rifle ammunition from Taiwan for around $18 million. In the context of a total of $565 million in arms that the United States imports per year, $18 million amounts to 3 percent, and there is room for Taiwan to grow. In addition, Taiwan’s ammunition is already currently available on the US civilian market, with a 1,000-round case of Taiwan’s Wolf brand NATO-standard 5.56 mm rifle rounds selling online for $339. In addition to small arms, Taiwan could try to become a subcontractor and offer electronics components to integrate into prime contractors’ systems located in these Western countries.
Taiwan’s next logical customer base is its diplomatic allies. Taiwan is rumored to have sold T65 assault rifles to the Paraguayan Army, T86 assault rifles to Jordan, and small arms to several diplomatic allies and countries in Africa, such as Burkina Faso, Chad, Malawi, Senegal, Swaziland, and Sao Tome and Principe, among others. However, when arms sales are used as a diplomatic tool to improve bilateral relations, it is tempting to gift them to the country or sell at cost without profit. Such an approach would defeat the purpose of establishing a demand-driven defense economy focused on generating profits, boosting Taiwan’s economy, and creating jobs. Therefore, Taiwan should strive to leverage its formal diplomatic relations and even informal relationships to create a profitable demand for its products.
Finally, Taiwan could expand its customer base to all other countries by promoting its arms industry at international arms conventions like the Association of the US Army (AUSA) annual conference and arms exhibition in Washington, DC, the Sea-Air-Space Expo in National Harbor, MD, the Armed Forces Communications and Electronics Association (AFCEA)-WEST in California, and exhibitions in Singapore, Paris or elsewhere. Taiwan regularly hosts an impressive Taipei Aerospace & Defense Technology Exhibition defense convention, but it should also make an extra effort to bring Taiwan’s defense industry presence overseas. The Republic of Korea government has already set up a booth at AUSA that touts its arms exports to military and government officials from around the world, and Taiwan could do the same.
With these three groups of customers, a demand driven approach will first seek to profit from existing defense items before investing in new technologies. Taiwan can sell any ammunition, hardware components, or naval, land, or missile platforms for which it has complete ownership of intellectual property rights. The profit could then be used to drive the industry forward through research and development. It will be tempting for policymakers to do the opposite—to feed investments into developing an impressive repertoire of components and platforms in hopes that supply will later draw demand. If Taiwan focuses on supply first, which is to develop more technology before making significant sales, then it will quickly deplete government and investment funds with no guarantee of sales on the back end. In contrast, focusing on demand by generating income first will be a more sure-footed way to move the domestic defense industry and economy forward.
In subsequent articles, I will systematically explore the supply side of what Taiwan could sell, and explain the geopolitical considerations of becoming a significant arms exporter of military platforms. The other option of integrating Taiwan’s electronic components into another NATO+4 country’s tanks and aircraft would not be as politically sensitive a decision, since it could defer to that other country’s policies and arms sales decision-making process. However, for Taiwan to become an exporter of its own military platforms will be a more complicated decision, because there are lives at stake, sometimes on the other side of the world, and Taiwan would bear responsibility and reputational costs, depending on how Taiwan-origin weapons platforms are used by others. In addition, I recommend that Taiwanese officials consider China’s views and the opinions of its neighbors, and consult with the United States as it carefully moves forward in this direction.
The main point: Taiwan should move forward cautiously, refine its policies, and consider geopolitical consequences as it decides whether to export its own military platforms. Countries that would buy Taiwan’s arms exports include the United States, NATO+4 countries, Taiwan’s diplomatic allies, and others.
 David Ricardo, “7.4 On Foreign Trade,” in On the Principles of Political Economy and Taxation (London: John Murray Publisher, 1817).