---
title: 'Pakistan’s Mineral-Based Hedging Strategy Amidst China-US Trade Cold War'
url: 'https://thediplomaticinsight.com/pak-minerals-hedging-china-us-trade-war/'
author: 'Faizan Riaz'
date: '2026-03-14T13:40:13+05:00'
categories:
  - 'Feature'
---

# Pakistan’s Mineral-Based Hedging Strategy Amidst China-US Trade Cold War

The world is currently undergoing a global clean energy transition, triggering geopolitical power shifts, and minerals are at the center of it all. As realists like Mearsheimer sound the alarm for the beginning of a [volatile multipolar world](https://mearsheimer.substack.com/p/living-in-a-multipolar-world), second-tier states like Pakistan have the golden opportunity to secure a middle-power status if they play their cards right. Fortunately, the country is sitting on a roughly estimated $6 trillion worth of mineral resources – a jackpot in the era of shifting global energy supply chains. 

However, challenges like lack of required infrastructure, increased insurgencies in resource-rich Balochistan and KP (Khyber Pakhtunkhwa), political instability, and incompetence threaten to hinder Pakistan’s ability to cash in on its minerals. There is a dire need to address challenges at home and pursue a sound hedging strategy as the US-China trade war rages on, if Pakistan wishes to secure its national interests in the upcoming clean energy-dominated world. 

Maslow’s hierarchy of needs has mined minerals embedded at almost every level in the 21st century. Fertilizers and machinery required to harvest crops (food), missile systems for defense (safety), MRI machines in hospitals (health), and data centers, as well as satellites (communication/relationships), all directly or indirectly require mined materials for manufacturing. 

For instance, there is a permanent magnet made from minerals like neodymium, iron and boron, namely NdFeB, which is used to make something as small as a cell phone’s vibration motor, to electric vehicles (EV) motor scales, and wind turbines. 

The fact that this permanent magnet is the most powerful one used in hard drives, MRI machines, and missile guidance systems is enough to comprehend why the world’s governments, including Pakistan, now seek a stable position of influence in the global mineral markets by leveraging their mineral resources and processing capacities, if any. 

## **China’s Global Mineral Dominance Offsets US Tariffs **

Critical minerals have quickly become a matter of economic and national security for the US, after the US-China trade war clearly depicted China’s mining and processing dominance on a global level. With over 60% of global mining and over 90% of global rare earth processing owned and controlled by China, the world, including the US, has begun scrambling to secure mineral resources and build processing capacity. However, all of this did not happen in a vacuum. 

China’s mineral dominance was built brick by brick over the span of three decades with deliberate state investment. In the late 90s and early 2000s, while the US companies were busy offshoring to optimize profit margins, Chinese investors were able to buy American advanced materials technology like the Magnequench, a rare earth magnet division of General Motors. 

What followed was China’s quiet processing and refining capacity building, whereby raw ore is turned into magnets, rare earth oxides, and metals required for the upcoming world energy systems.

Currently, over 70% of US rare earth imports come from China, since it controls the entire downstream mineral processing infrastructure. China has created an inverted value chain where raw materials are imported, processed domestically, and then the finished products are exported through state-controlled licensing, earning substantial markups.

**Read More: [The Shift in Global Power as Rare Earth Minerals Become the New Oil](https://thediplomaticinsight.com/shift-in-global-power-rare-earths-new-oil/)**

China’s response to Trump’s tariffs in April 2025 was to impose export licensing requirements for seven rare earth elements (REE) and permanent magnets. In October 2025, China’s extraterritorial provisions deemed Chinese government approval mandatory for the export of products containing Chinese rare earth content, even if it is as minute as 0.1%. 

China also stopped exporting rare earth processing equipment in the same year, but later on, Beijing suspended export restrictions, signaling progress after Xi and Trump met in Busan on October 30th. The country produces over 90% of the world’s processed rare earths and rare earth magnets. Ultra-pure Dysprosium, a critical element used in these magnets, is only produced in Shanghai. 

Other than this, China refines around 60% of the global silver needed in semiconductor processing and 50% of the global copper needed in renewable energy installation, EV manufacturing, etc. 

## **US Attempts to Neutralize China’s Mineral Edge**

What China has built requires specialized facilities, decades of acquired technical expertise, capital investment, and environmental tolerance for toxic processing, which is hard to replicate for the US, despite fairly adequate mineral resources and President Trump’s multiple deal signings within the span of recent months. 

[Critical Minerals Ministerial](https://www.state.gov/releases/office-of-the-spokesperson/2026/02/2026-critical-minerals-ministerial) held in Washington DC on February 4th, 2026, aimed at building counterweight supply chains with countries like Japan, Mexico, and the EU, and a mineral trade bloc with price floors to offset Chinese supply dumping. The Trump administration has also decided to invest 12 billion USD to create a critical mineral stockpile and expand domestic processing. 

During the second half of 2025, the US signed a $600 billion investment pact with Saudi Arabia involving critical minerals, a critical minerals partnership deal with Pakistan, and other mineral-related deals with countries like Japan, Thailand, Malaysia, Vietnam, and Cambodia. 

Moreover, talks of Greenland annexation for its mineral resource control, signing a mineral deal with Ukraine in exchange for military support, and commercial diplomacy efforts in the African continent are all attempts to counter Chinese global mineral supply chain dominance.

However, merely securing more raw ore is not enough. Scaling up production to compete with China could take years, and the US remains at least a decade behind on processing capacity. The 12 billion USD investment to build mineral stockpiles and domestic processing does not count as a serious strategic shift since the amount is minuscule compared to actual capital requirements for refining and processing facilities. 

## **Pakistan’s Mineral Wealth – Literal Gold Mines**

Amidst this great power competition, 3Gs, namely Geology, Geography, and Geopolitics, place Pakistan in a unique position to leverage its mineral wealth. Firstly, minerals such as copper, gold, lithium, cobalt, and rare earth element deposits like neodymium and praseodymium are plentiful, primarily in Pakistan’s Balochistan and Gilgit-Baltistan region. 

Secondly, Pakistan’s proximity to the Arabian Sea offers a feasible trade route. Finally, Pasni Port serves as a potential alternative site for cooperation with Western partners to the Chinese-developed Gwadar port, being merely 70km away. 

The Pakistan Mineral Investment Forum ([PMIF-26](https://pakminforum.com/conference/agenda)) to be held on April 8-9, 2026, includes both the US and China in the guestlist. The aim is to use the country’s mineral wealth for economic diplomacy and position itself as a major global mining hub.

 As of February, the US Export-Import Bank has committed around 1.3 billion USD in the Reko Diq mining project under the “Project Vault” initiative. Metallurgical Corporation of China (MCC) has heavily invested in the Saindak copper-gold mine, depicting a stable Chinese foothold in Pakistan’s mineral sector. 

**Read More: [The Role of Pakistan as Rare Earth Minerals Redraw Global Power Politics](https://thediplomaticinsight.com/role-of-pak-as-rems-redraw-global-power-politics/)**

Currently, Pakistan’s mineral industry contributes less than 3% of total GDP despite great potential. There is an opportunity to change that amidst shifting power centers as the world’s unipolar moment experiences de-concentration of power. In a multipolar world, hedging is best suited to second-tier states like Pakistan. 

This is essentially a low-level commitment alliance between two states of unequal power – a strategy with a mix of both cooperative and confrontational elements. Pakistan’s recent engagements with great powers, especially after the May 2025 conflict with India, show its willingness to cash in on the newly acquired strategic geo-politico-strategic advantage.  

Pakistan seems to be positioning itself as strategically indispensable. China’s rising power and its leverage over minerals have forced the US to look for alternative sources, and Pakistan has offered one, leading to the signing of a 500-million-dollar MoU with the United States Strategic Metals (USSM) firm. 

Meanwhile, the Chinese continue to remain a constant in this landscape, as in September 2025, they inked 21 MoUs and joint ventures with Pakistan worth around 8.5-billion-dollar, besides launching the CPEC 2.0. 

## **Addressing Issues at Home**

However, the country faces grave challenges to fully realize this mineral potential, including political instability, increased insurgency attacks in Balochistan, and a lack of required infrastructure for mining and processing raw ore. 

For instance, in recent highly coordinated insurgency attacks, BLA (Baloch Liberation Army) managed to temporarily seize control of the Nushki district, a vital gateway to the Chagai district where both the Reko Diq gold mine and the Saindak copper-gold mine are situated. The insurgent groups active in Balochistan consider Pakistan’s foreign mining projects as colonial exploitation, posing a threat to highly sought-after foreign investments. 

If Pakistan wishes to realize its full mineral potential, it has to address its domestic structural and strategic gaps. Insurgencies make foreign investors nervous, and it is clear that a purely military-based strategy to counter these threats ignores the underlying Baloch grievances that fuel such instability. 

There is a need to implement an inclusive mineral policy that brings the province into confidence and ensures participatory development and shared benefits. The mining legislation done last year in the KP and Balochistan provinces shows both the absence of meaningful representation of local communities and the troubling process of drafting them. 

Pakistan must also be careful not to fall into mere resource extraction deals, whereby raw ore is sold directly without substantial value-addition. Lessons must be learned from policies like Indonesia’s downstream mining policy, under which raw-material export bans result in value-addition and development of the processing and refining industry. 

As the world transitions to clean energy and powers shift, Pakistan seems to be leveraging its mineral wealth to remain strategically relevant in both geopolitics and geo-economics. However, festering wounds inflicted by insurgencies, inadequately addressed provincial grievances, and a lack of mining and processing infrastructure remain determined to keep that goal far from Pakistan’s reach. 

 

 

 

**The views presented in this article are the author’s own and do not necessarily reflect the views of The Diplomatic Insight.*