TAIWAN STRAIT RISK ALERT!｜2025-12-26 | US Arms Backlog Tops $20bn & PLA Activity Doubles
Key Takeaways
- A backlog of over $20 billion in US arms sales to Taiwan is delaying critical asymmetric capabilities like F-16Vs due to contractor capacity issues.
- The Pentagon reports PLA activity around Taiwan has doubled, aiming for invasion readiness by 2027.
- Honduras' president-elect has pledged to restore diplomatic ties with Taiwan, a move Taipei views with openness.
Risk Context
Taiwan faces a widening gap between "delayed delivery" of defense capabilities and "escalating threats." While PLA maritime and aerial deployments have doubled over the past two years and the US assesses China will be ready for an invasion by 2027, the US defense industrial base is struggling to clear a $20 billion backlog. This delay exacerbates the "window of vulnerability" leading up to 2027. Concurrently, new supply chain risks are emerging as US trade deals (like with Malaysia) increasingly target forced labor, potentially implicating Taiwan's electronics sector and its migrant labor practices.
Today's Items
1) 【Arms Delays】
- One-line Summary: The backlog of US arms sales to Taiwan has exceeded $20 billion due to capacity constraints at defense contractors.
- Simplified Summary: The US government is significantly behind on delivering arms to Taiwan, with the backlog topping $20 billion. The primary cause is a lack of production capacity among American defense contractors. Critical items affected include 66 F-16V fighter jets intended to counter China's advanced aircraft. This backlog highlights supply chain bottlenecks in the US defense industrial base's ability to meet demands for high-intensity conflict readiness.
- Taiwan Impact: Modernization of defenses is stalled; the defensive gap is unlikely to be closed before the critical 2027 window.
- Watch Point: Acceleration of US defense industrial capacity expansion plans.
Original Title: US arms shipment backlog to Taiwan tops $20bn
Source / Date: Nikkei Asia｜2025-12-26
2) 【PLA Dynamics】
- One-line Summary: Taiwan's MND confirms PLA activity has doubled, while a Pentagon report indicates China aims for invasion readiness by 2027.
- Simplified Summary: Taiwan's Vice Minister of National Defense noted that PLA ship and aircraft deployments around Taiwan doubled as of October 2025 compared to the previous two years. Concurrently, the Pentagon's first report under the second Trump administration states that China's military is becoming increasingly sophisticated and resilient, learning from Russia's war in Ukraine. The report asserts China aims to achieve "strategic decisive victory" capabilities by 2027, including amphibious invasion and blockade options, with nuclear and long-range strike capabilities threatening US Indo-Pacific bases.
- Taiwan Impact: Gray zone pressure becomes normalized; the cost for US intervention in the Taiwan Strait rises significantly.
- Watch Point: Whether the PLA conducts targeted joint exercises around the Lunar New Year.
Original Title: PLA activity around Taiwan doubles
Source / Date: Taipei Times｜2025-12-24
3) 【Diplomatic Shift】
- One-line Summary: The winner of Honduras' presidential election has pledged to restore ties with Taiwan; Taiwan's MOFA remains open to the possibility.
- Simplified Summary: Opposition candidate Nasry Asfura won the Honduran presidential election after pledging to restore diplomatic relations with Taiwan, citing that ties with Taiwan were "100 times better." Data indicates Honduran shrimp exports plummeted after switching recognition to China. Taiwan's Ministry of Foreign Affairs expressed an open and pragmatic attitude toward future developments while urging the new government to prioritize public welfare. This could signal a reevaluation of China's economic promises in Latin America.
- Taiwan Impact: A restoration of ties would be a major diplomatic reversal; potential for retaliatory pressure from Beijing on Honduras or Taiwan.
- Watch Point: Whether the president-elect formally announces the diplomatic switch in his inaugural address.
Original Title: Taiwan 'open' to possibilities with Honduras after presidential poll
Source / Date: Focus Taiwan｜2025-12-25
4) 【Supply Chain Risk】
- One-line Summary: A new US-Malaysia trade agreement banning forced labor imports poses compliance risks for Taiwanese electronics firms investing in Malaysia.
- Simplified Summary: A new US-Malaysia trade pact requires Malaysia to ban imports made with forced labor within two years. Given that Taiwanese electronics firms (e.g., Foxconn, ASE) are major investors in Malaysia and Taiwan's domestic electronics sector has faced allegations of forced labor regarding migrant workers (debt bondage), this provision creates a new leverage point for US scrutiny of Taiwan's supply chain. Failure to address structural labor issues could lead to export compliance risks.
- Taiwan Impact: Electronics supply chain resilience faces non-traditional security challenges; sanctions could weaken Taiwan's "silicon shield."
- Watch Point: Whether major Taiwanese electronics firms release new supply chain labor audit standards.
Original Title: Forced Labor, Taiwan and the Implications of the US-Malaysia Trade Agreement
Source / Date: The Diplomat｜2025-12-26
5) 【Constitutional Dispute】
- One-line Summary: The Premier will countersign a pension bill but immediately seek a constitutional interpretation, continuing domestic political friction.
- Simplified Summary: Premier Cho Jung-tai announced he would countersign a legislative bill restoring civil servant pension cuts but would immediately petition the Constitutional Court for a judgment, arguing the bill violates the separation of powers and fiscal discipline. The Constitutional Court has resumed operations after a standoff over amendments to its procedures. The incident highlights intense friction between the executive and legislative branches over budgetary authority.
- Taiwan Impact: Political gridlock erodes governance efficiency; fiscal instability could crowd out potential defense budget space.
- Watch Point: The timeline for the Constitutional Court's acceptance and ruling on the pension bill.
Original Title: Cho to countersign pension bill, seek constitutional judgement
Source / Date: Taipei Times｜2025-12-25
Trends & Scenarios
- Asymmetric Capability Gap: If the $20 billion US arms backlog (including F-16Vs and Harpoons) is not delivered before 2027, Taiwan will face "doubled" PLA activity with aging equipment, marking the most vulnerable period for its defense system.
- New Diplomatic Battleground: A potential pivot by Honduras suggests "China's economic dividend" is failing in Latin America. Taiwan may use this to push value-based diplomacy in the "Global South," though Beijing is likely to retaliate via military drills or trade barriers.
- Supply Chain Compliance Warfare: As the US links trade deals to labor rights (e.g., US-Malaysia pact), Taiwan's electronics sector's reliance on low-cost migrant labor becomes a legal risk for exports to the US, necessitating accelerated ESG reforms to maintain market access.