This article is part of a Synergies series on climate and trade curated by TESS titled Addressing the Climate Crisis and Supporting Climate-Resilient Development: Where Can the Trading System Contribute? Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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Minerals and metals are embedded in every aspect of modern life—from smartphones and transportation to food systems and energy infrastructure. While long essential to industrial development, a specific subset—critical minerals—such as lithium, cobalt, and rare earth elements have become indispensable to the technologies powering the energy transition in the pursuit of global climate goals, develop high-tech and digital technologies, and support defense systems.

The increase in demand—expected to surge several-fold over the next two decades—is outpacing current production and investment trends. This mismatch has elevated critical minerals from mere industrial inputs to geostrategic assets, prompting a wave of national policies, including stockpiling strategies, export controls, and resource diplomacy.

As a result, mineral security now sits at the intersection of foreign policy, trade negotiations, industrial and environmental strategies, and national security planning. Governments are reconfiguring alliances and trade frameworks to secure access, while competition over supply chains intensifies across major powers and regions.

For resource-rich developing countries, this shifting landscape presents a double bind. On one hand, they seek to leverage their mineral endowments to achieve domestic goals: local value addition, economic diversification, and broader development gains. On the other, they must respond to intensifying pressures applied by their trading partners to open up or redirect their exports—whether through trade rules, investor demands, or geopolitical realignments—often with limited bargaining power.

Navigating this dual challenge will require not only strategic vision and smart partnerships but also rethinking how trade and investment frameworks can support a more secure, inclusive, and sustainable global supply of critical minerals—on terms that serve both producers and consumers.

New digital and green technologies markets have become economic and geopolitical battlegrounds for major economies aiming to establish their dominance. While flying lower under the radar, the defence sector's needs are only adding to existing frictions as the demand for advanced defence systems grows.

China has pursued a dual mineral investment strategy—inbound and outbound—positioning the country as both the largest mining investor and one of the most influential investors in critical minerals. Domestically, thanks to strong state support, China has systematically developed its geological exploration, mining, and processing capacity over several decades. Internationally, several decades of Chinese investments into critical mineral projects across the globe have reached almost $57 billion in aid and subsidized credit across 19 low- and middle-income countries, often prioritizing upstream extraction activities over midstream processing. This global reach has enabled China to become the world’s largest importer of unprocessed critical minerals while also consolidating its dominance over refining and processing activities. Today, China controls nearly 50% of the global market value from refining, and supplies the rest of the world. This strategy, combining long-term outbound investments with robust domestic capabilities, has granted Chinese a strategic advantage across the entire value chain, especially in the electric vehicle sector, where it commands a dominant position in both upstream inputs and downstream manufacturing.

The fast rise of China’s role in critical minerals value chains has left many major economies scrambling to catch up, as a new wave of industrial policies return en masse, with the use of industrial policy measures increasing ninefold between 2017 and 2023. The OECD estimates that the fiscal spending for green industrial policies adopted as part of COVID-19 recovery packages represented 3.2% of annual GDP in the United States and 3% in the European Union. Similar efforts have been undertaken in the digital sphere where, for example, the US adopted the CHIPS and Science Act in 2022, which the EU followed with its European Chips Act in 2023.

Boosting manufacturing of clean energy and digital technologies in the US and the EU will require substantially greater volumes of critical minerals for solar energy, wind power, semiconductors and other goods and technologies. Evidence also points to social acceptance headwinds and investment gaps for new mining projects, particularly in Europe, underscoring the need for diversified partnerships with producer countries.

The EU’s Critical Raw Materials Act entered into force in 2024 and sets 2030 system-wide benchmarks: domestic extraction capacity of at least 10% of annual consumption, processing at least 40%, and recycling at least 25%, plus a cap that no single third country should account for more than 65% of EU consumption of any strategic raw material at any relevant processing stage. The EU has also concluded raw materials partnerships/memoranda of understandings (MoUs) with Canada (2021), Ukraine (2021), Kazakhstan (2022), Namibia (2022), and Argentina (2023), and signed the EU–Chile Advanced Framework Agreement in 2023 (with provisional application from 1 June 2025).

Those agreements set out frameworks for cooperation on the sustainable and secure supply of critical raw materials, focusing on investment, integration into EU value chains, research and innovation, and environmental and social standards. They aim to diversify the EU’s sources of critical raw materials while supporting partner countries in developing value-added processing and sustainable mining industries. It is important to note the unique context for each of these agreements, which depend on the EU trading partner’s role in the supply chain as well as domestic circumstances and the geopolitical context. For example, the EU–Canada Strategic Partnership on Raw Materials aims to foster downstream and circular economy activities, while the EU-Namibia MoU focuses the strategic partnership on sustainable raw materials and green hydrogen, with special emphasis on developing Namibia’s local value addition.

In the US, the now terminated conditions of the Inflation Reduction Act’s clean vehicle credits tied eligibility to critical minerals extracted or processed in the US or in a US free-trade-agreement partner (or recycled in North America) and phased-in “foreign entity of concern” exclusions for battery components (2024) and applicable critical minerals (2025). Washington, however, still leads the Minerals Security Partnership, established to de-risk responsible mining and processing, and—through the Quad—has elevated joint work on resilient critical-mineral supply chains, including a 2025 commitment dubbed the “Quad Critical Minerals Initiative”. This initiative is a joint effort to secure and diversify critical mineral supply chains—coordinating standards, investment, and recycling—to reduce over-reliance on any single supplier.

Both the US and the EU also want to onshore processing and value addition of minerals, putting their interests in—potentially—direct competition with developing countries.

For many resource-rich developing countries, industrialization remains the central pathway to sustainable development. The renewed push for resource-based industrialization—including in critical minerals like lithium, cobalt, and nickel—is driven by three core objectives: to generate employment, to diversify and upgrade domestic industry, and to secure a strategic position in global value chains that are being reconfigured by the green and digital transitions.

The urgency is real. As demand for energy transition minerals accelerates, developing countries risk being trapped in the role of raw material exporters, missing another opportunity to climb the value chain. Historically, resource-based development has yielded mixed results. The “resource curse” narrative emerged in part because many countries failed to create domestic linkages or foster learning and technological upgrading. However, the successes of countries like Indonesia (nickel refining), Malaysia (palm oil downstreaming), and Chile (copper-related services) show that industrialization linked to natural resources is possible with the appropriate institutional arrangements, policy mix, and market conditions.

Industrialization today is far more complex than in the past. It extends beyond manufacturing to include services, data, digital platforms, and advanced technologies like artificial intelligence and automation. It is embedded in global value chains, shaped by intangible assets, and driven by innovation and network effects.

Yet many policy responses still rely on a conventional toolbox: export bans (e.g. Indonesia’s nickel ore), local content rules (e.g. Zambia), performance-based incentives, or public equity stakes (e.g. Ghana’s Minerals Income Investment Fund). These instruments remain important for capturing value and asserting national interests. However, their effectiveness may be increasingly limited in a globalized, services-embedded, and innovation-driven industrial landscape.

Moreover, some instruments may conflict with international trade and investment agreements that limit the use of policy space—particularly around performance requirements, technology transfer, and market access. This disconnect reveals a deeper challenge: while the structure and logic of industrialization has evolved, questions arise around whether current industrial tools are fit for purpose and the extent to which the rules of the multilateral trading system are sufficient or adequate.

In addition to legal constraints, structural challenges remain steep. Many countries face infrastructure deficits, unreliable and costly energy, limited access to long-term finance, skills shortages, fragmented domestic markets, weak coordination across agencies, and lack of access to proprietary technologies. These are not just “capacity gaps”—they are structural features of global inequality and must be addressed through coherent development strategies, not isolated reforms.

Moreover, resource-based industrialization must now navigate a complex geopolitical dilemma. On the one hand, domestic imperatives call for higher value addition and development benefits. On the other, international partnerships increasingly reflect competing industrial goals of advanced economies—many of which lack critical mineral deposits but seek to reshore manufacturing and secure supply chains. The global push for clean technologies must not come at the cost of development ambitions in the Global South. Instead, trade and investment frameworks must be reimagined to reconcile global public goods—like climate goals—with inclusive industrial development.

Ultimately, resource-based industrialization is not about resisting globalization, but about reshaping it to serve broader development objectives. For resource-rich countries, the challenge is not just how to extract more minerals—but how to extract more value from them.

The mismatch between the growing demand for critical minerals in developed countries and their supply concentration in developing economies raises questions about how trade and investment frameworks can reconcile the seemingly conflicting goals of securing supply for net importers and the sustainable development objectives of mineral producing developing countries. The International Institute for Sustainable Development (IISD) has reviewed over 100 agreements and MoUs, including case studies of Chile, Indonesia, and the Democratic Republic of the Congo (DRC), exploring the tensions and opportunities in minerals governance.

Diverging priorities underpin negotiations. Exporting countries aim to maximize value addition through local processing and industrialization, while importers seek stable and affordable access to raw inputs, including through reshoring or friend-shoring where possible. Although both sides increasingly point to the importance of environmental, social, and governance (ESG) concerns, most agreements contain weak, non-binding language.

Free trade agreements have begun incorporating mineral-specific provisions, particularly in EU trade and investment partnerships. The EU-Chile framework agreement preserved a dual pricing policy for lithium, while Indonesia retained its right to use export restrictions beyond WTO commitments in its agreement with the EU, reflecting the growing leverage and negotiating clout of exporters.

Old-generation international investment agreements (IIAs) prioritized investor protection, constraining policy space and ESG reforms. Many remain active, exposing states to costly investor–state dispute settlement claims. New-generation IIAs aim to balance protection with host state policy autonomy, sometimes embedding ESG standards. Chile has renegotiated IIAs to exclude lithium and Indonesia has terminated restrictive treaties to reduce litigation risks, however the DRC remains bound by outdated IIAs. Regional frameworks like the African Continental Free Trade Area provide development-oriented innovations through its Protocol of Investment, such as subjecting investment-enhancing provisions to various ESG values rather than making them hierarchically superior, or including a full chapter on sustainable development-related issues that contains provisions designed specifically to address economic development spillovers of foreign investment.

Recently, MoUs have proliferated as new flexible tools for cooperation—used by the EU, US, and China among others—to diversify supply and mitigate geopolitical risks. Yet their impact is uncertain: Chile’s EU MoU seems to have focused on private-sector dialogue, and the EU–DRC MoU on academic exchanges. Their ESG commitments are generally vague and implementation mechanisms weak, reducing their transformative potential.

Moving forward, for mineral-rich developing country exporters, reforming or terminating restrictive IIAs and embedding binding ESG provisions in new agreements could be crucial, whereas the importers should frame concessions for local processing not as losses but as investments in resilient supply chains.

The governance of critical minerals is at a turning point. With demand projected to increase up to six times the current level by 2050, trade and investment agreements can either perpetuate extractive asymmetries or foster equitable, ESG-aligned supply chains that support both the energy transition and just development.

Critical minerals lie at the intersection of industrial ambitions, climate urgency, and geopolitical strategy. Yet, the trade and investment frameworks that govern them are misaligned with the realities of a just and sustainable energy transition. Without reforms, there is a real risk of perpetuating extractive asymmetries locking developing country producers into low-value production structures, while leaving importers exposed to fragile supply chains.

A rebalancing is both necessary and possible. Recent agreements demonstrate that embedding binding ESG provisions, rethinking approaches to local value addition, and reforming investor-state rules can create space for more sustainable and equitable mineral value chains. Aligning mineral security with climate and development goals is essential if the energy transition is to deliver shared prosperity rather than exacerbate global divides.

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Ieva Baršauskaitė is Lead, Trade and Green Transition, International Institute For Sustainable Development (IISD).

Isabelle Ramdoo is Director of the IISD-hosted Secretariat of the Intergovernmental Forum on Mining, Minerals, and Sustainable Development (IGF).

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Synergies by TESS is a blog dedicated to promoting inclusive policy dialogue at the intersection of trade, environment, and sustainable development, drawing on perspectives from a range of experts from around the globe. The editor is Fabrice Lehmann.

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