Pakistan–US Relations 2.0: From Security to Investment and Geo-Economics

For much of their history, Pakistan and the United States have known each other through crises. The relationship was strengthened by the Cold War, transformed by the Soviet invasion of Afghanistan, revived after September 11, 2001, and strained when Washington's military withdrawal from Afghanistan removed the issue that had dominated bilateral engagement for two decades. What followed initially looked less like a new partnership than a gradual loss of mutual relevance. Washington was increasingly focused on China and its strategic relationship with India, while Islamabad deepened its economic and infrastructure ties with Beijing. Yet by 2025 and 2026, an unexpected reconstruction of Pakistan–US relations had begun. Trade negotiations, critical minerals, energy projects, development finance, technology, infrastructure and access to international capital were appearing alongside counterterrorism and regional security in official discussions. Pakistan, meanwhile, was trying to convert its geographical position and diplomatic usefulness into investment rather than another cycle of security assistance.

The change should not be exaggerated. Pakistan–US relations have not ceased to be strategic, nor has economics replaced security. What has changed is the currency through which strategic value is increasingly being negotiated. Washington now views supply chains, critical minerals, infrastructure, tariffs and private capital as instruments of geopolitical competition. Islamabad, struggling to produce sustained export-led growth and reduce dependence on emergency external financing, wants American engagement to move from episodic assistance towards investment and market access. The emerging relationship is therefore best described neither as an alliance restored nor as a purely commercial partnership. It is a more transactional arrangement in which security, commerce and diplomacy are becoming increasingly difficult to separate.

A relationship that was built around security

Pakistan and the United States began formal diplomatic relations soon after Pakistan's creation in 1947, but the relationship acquired strategic weight during the Cold War. Pakistan joined the Southeast Asia Treaty Organization in 1954 and the Baghdad Pact, later renamed the Central Treaty Organization, in 1955. Islamabad sought military and economic assistance to strengthen a newly created state facing severe security and development constraints. Washington viewed Pakistan through the larger contest with the Soviet Union.

The relationship was therefore transactional almost from the beginning. Pakistan wanted assistance and diplomatic support; the United States wanted a strategically located partner near the Soviet Union, China, the Persian Gulf and the Indian Ocean. These interests overlapped without becoming identical. Differences over India, arms supplies and regional conflicts periodically exposed the limits of the partnership.

The Soviet invasion of Afghanistan in December 1979 brought another period of intense cooperation. Pakistan became a central conduit for American and allied support to the Afghan resistance. After Soviet forces withdrew, however, Washington's strategic interest declined sharply. Sanctions imposed under the Pressler Amendment during the 1990s reinforced Pakistani perceptions that the United States approached the country according to temporary geopolitical requirements rather than a durable partnership.

September 11 transformed the relationship again. Pakistan became a major American partner during the war in Afghanistan, receiving military assistance, economic support and coalition reimbursements while providing logistical access and intelligence cooperation. Yet the same period generated some of the deepest distrust in bilateral relations. American policymakers questioned Pakistan's policies towards militant organisations and Afghanistan; Pakistani officials and much of the Pakistani public questioned the costs imposed on the country by a war designed around American priorities.

When US and NATO forces finally withdrew from Afghanistan in August 2021, the organising principle of the relationship disappeared. The question confronting both governments was straightforward: what could sustain Pakistan–US relations when Afghanistan was no longer the principal reason for maintaining them?

For several years, there was no convincing answer. By 2025, one began to emerge.

Trump’s return changed the political atmosphere

Donald Trump's return to the White House in January 2025 initially appeared unlikely to improve relations with Pakistan. During his first presidency, Trump had publicly criticised Pakistan, accused it of providing inadequate cooperation despite receiving American assistance and suspended substantial security funding. His administration had also placed India near the centre of its Indo-Pacific strategy.

The second Trump presidency developed differently. Several developments in 2025 reopened direct political engagement between Washington and Islamabad. Pakistan's cooperation in the arrest of Mohammad Sharifullah, whom American authorities accused of involvement in the 2021 Kabul airport bombing, gave counterterrorism cooperation renewed visibility. In April 2025, Secretary of State Marco Rubio and Pakistani Foreign Minister Ishaq Dar discussed trade, tariffs, immigration, counterterrorism and critical-minerals cooperation. Reuters reported that Rubio specifically raised commercial opportunities for American companies in Pakistan's minerals sector.

A much larger diplomatic shift followed the May 2025 military confrontation between Pakistan and India. President Trump repeatedly claimed that American intervention helped end the four-day conflict, a claim accepted by Pakistan but rejected by India, which maintained that the ceasefire was achieved through direct military contacts. The disagreement mattered beyond the historical record. It created a rare divergence between Washington and New Delhi while giving Islamabad an opportunity to rebuild political access to the White House.

On June 18, 2025, Trump hosted Pakistan's army chief, Field Marshal Asim Munir, for lunch at the White House. Reuters described the meeting as unprecedented because a Pakistani military leader had been received in this manner while a civilian government remained in office. Discussions extended beyond regional security to trade, economic development and emerging commercial sectors.

Pakistan subsequently announced that it would nominate Trump for the Nobel Peace Prize for what Islamabad described as his role in de-escalating the India–Pakistan confrontation. The gesture generated domestic criticism in Pakistan, particularly because of American policy towards Gaza and Iran, but it also reflected Islamabad's determination to build a direct relationship with a president whose foreign policy places considerable weight on personal diplomacy and transactional bargaining.

By itself, political access would have amounted to another temporary thaw. The more consequential development was what both governments began discussing once that access had been restored.

Trade is becoming the new baseline

The commercial relationship is already larger than the political discussion around it often suggests. According to the Office of the United States Trade Representative, total US trade in goods and services with Pakistan reached an estimated $11.5 billion in 2025, an increase of 14% from the previous year. American goods exports to Pakistan reached $3.1 billion, rising 48.4%, while US goods imports from Pakistan amounted to $5.4 billion. Services trade added another $2.9 billion.

The United States is therefore not merely a diplomatic partner for Pakistan. It is one of the country's most valuable export markets, particularly for textiles and apparel. For an economy struggling to generate enough foreign exchange through exports, access to American consumers carries more economic value than many traditional forms of assistance.

Trade nevertheless became a source of pressure as well as opportunity after the Trump administration introduced a 29% reciprocal tariff on Pakistani goods in April 2025. The measure pushed Islamabad into negotiations with Washington and turned trade policy into a central diplomatic issue. Rubio's discussions with Dar that month covered both the tariff dispute and the possibility of increasing American investment.

By July 31, 2025, Pakistan announced that the two governments had concluded what Islamabad called a landmark trade agreement intended to reduce reciprocal tariffs, improve market access and encourage investment in energy, mining, minerals, information technology and other sectors. Pakistan's official announcement explicitly presented the agreement as the beginning of a broader economic relationship rather than a narrow tariff settlement.

Negotiations did not stop there. By August 2026, Pakistan's Finance Ministry said officials were working towards a wider reciprocal trade framework. Finance Minister Muhammad Aurangzeb and US Trade Representative Jamieson Greer discussed remaining issues on August 5, with both governments reporting progress on labour rules, regulatory requirements and commercial cooperation. Islamabad also sought closer cooperation with the US Export-Import Bank.

This continuing negotiation says something important about the relationship. Trade is no longer being treated as an appendix to strategic dialogue. It is becoming one of the mechanisms through which strategic relations themselves are conducted.

The challenge for Pakistan is to ensure that improved access produces more than additional textile sales. A relationship centred on geo-economics requires Pakistani firms to move into higher-value goods, technology services, engineering, processed agriculture, pharmaceuticals and other sectors capable of competing in the world's largest consumer economy. Without export diversification, trade diplomacy may improve market access without altering Pakistan's persistent external-account weakness.

Minerals have changed Washington’s calculation

If trade provides the economic base of the new relationship, critical minerals provide much of its geopolitical logic.

The United States is attempting to reduce strategic dependence on mineral supply chains dominated by China. Copper, lithium, rare earth elements, graphite and other critical materials are required for electricity grids, batteries, advanced electronics, weapons systems and industrial production. In July 2026, the White House formally described inadequate access to recoverable critical minerals as a risk to American national defence and supply-chain security.

Pakistan has entered this discussion because it possesses large but insufficiently developed mineral deposits, particularly in Balochistan. The Reko Diq copper and gold project has become the most visible case. The project is jointly owned by Barrick and Pakistani federal and provincial entities and is intended to develop one of the world's major undeveloped copper-gold deposits.

American interest is not theoretical. The US Export-Import Bank moved towards financing of roughly $1.2 billion for Reko Diq, an amount that the Center for Strategic and International Studies described in April 2026 as EXIM's largest commitment to a single international critical-minerals project at that point.

That financing carries a meaning beyond one mine. Copper has become central to electrification, data centres, defence manufacturing and energy infrastructure. Access to geographically diversified deposits has therefore become an economic-security issue for Washington.

Pakistan has been eager to use this opening. In February 2026, Pakistan's energy minister participated in a US-hosted Critical Minerals Ministerial involving more than 50 foreign delegations. Pakistani officials have also sought American interest in mining, processing and associated infrastructure rather than simple extraction.

Washington's interest fits a larger shift in American economic statecraft. The US International Development Finance Corporation said in June 2026 that it had approved $2.5 billion in new investments directed towards infrastructure, energy and supply-chain security, explicitly connecting private capital to American strategic objectives.

For Islamabad, this creates an opportunity but also a warning. Mineral diplomacy can attract American capital only if Pakistan can offer commercially viable projects, predictable contracts, security and infrastructure. Geological wealth is not the same as investable wealth.

Balochistan may decide whether minerals diplomacy succeeds

The strongest argument against excessive optimism about a Pakistan–US minerals partnership lies in Balochistan itself.

The province contains much of Pakistan's mineral potential, including Reko Diq, but it also faces a long-running insurgency and repeated attacks on infrastructure, security forces and foreign-linked projects. CSIS warned in April 2026 that security conditions, weak infrastructure, institutional constraints and the region's political environment could limit Pakistan's usefulness as a dependable mineral-supply partner for the United States. The report also noted concerns that large extractive ventures may become targets precisely because of their foreign ownership and export orientation.

This is not simply a matter of placing more guards around mines. Large resource projects require roads, railways, electricity, water, processing facilities, ports, insurance and decades of contractual stability. They also require a political settlement in which communities living around the resources see material benefits from their development.

If local populations perceive minerals primarily as assets being transferred to Islamabad and foreign investors, security spending can protect individual facilities without producing social acceptance. Provincial revenue, employment, infrastructure and transparent benefit-sharing are therefore economic requirements as much as political ones.

This matters particularly for the United States because Washington is seeking supply-chain reliability. A mine that contains valuable copper but is repeatedly disrupted by violence does not reduce strategic vulnerability; it merely relocates it.

Pakistan's mineral opportunity will therefore be judged not by estimates of what lies underground but by whether the state can create the physical, legal and political conditions required to bring those resources to market.

Pakistan wants American capital, not another aid relationship

Islamabad's larger objective reaches beyond minerals. Pakistan is trying to replace an old model of foreign economic engagement built around loans, aid and emergency balance-of-payments support with one centred on investment, exports and private capital.

The distinction matters because Pakistan's external financing history has produced considerable dependence on the IMF, China, Saudi Arabia, the United Arab Emirates and multilateral lenders. American engagement in recent years had been comparatively limited, especially after the end of large-scale Afghanistan-related assistance.

In 2026, Islamabad began pressing Washington for a much larger financial role. During a July visit to Washington, Finance Minister Muhammad Aurangzeb met representatives of the US International Development Finance Corporation and sought support for private-sector projects in energy, information technology, infrastructure, minerals, food and agriculture. Pakistan invited a DFC delegation to identify bankable projects and even raised the possibility of DFC representation in the country.

The Finance Ministry also discussed cooperation with the US Export-Import Bank and opportunities for financing commercially viable projects. By August, talks between Aurangzeb and the US chargé d'affaires in Islamabad included investment, project financing and Pakistan's efforts to improve access to international capital markets.

Pakistan has simultaneously sought something still more ambitious. Reuters reported in July 2026 that Islamabad had asked Washington to consider a $10 billion bilateral exchange-stabilisation facility, proposed for up to five years. Such a facility, if approved, could strengthen reserves, support the rupee and provide a powerful signal to international investors. The US Treasury had not publicly committed to the proposal.

Finance Minister Aurangzeb has also sought closer engagement with DFC and EXIM as Pakistan prepares for a return to international capital markets. The Financial Times reported on August 25, 2026, that Islamabad was pursuing greater US financial backing while seeking to reduce excessive reliance on Chinese state lending and attract private international capital.

This is where the phrase Pakistan–US Relations 2.0 acquires economic substance. Islamabad is no longer asking Washington primarily how much assistance it will provide. It is increasingly asking whether American institutions will finance projects, insure investments, buy Pakistani products and help reconnect the country to global capital markets.

Geo-economics does not mean abandoning China

Any discussion of closer Pakistan–US economic relations immediately raises the China question. Pakistan has spent more than a decade presenting the China–Pakistan Economic Corridor as a central component of its development strategy, while Beijing remains one of Islamabad's most important political partners and creditors.

Closer economic ties with Washington therefore cannot realistically be built around a Pakistani choice between China and the United States.

Nor would such a choice necessarily serve American interests. Pakistan's infrastructure already contains a large Chinese presence, and its trade, debt and defence relationships with Beijing are too substantial to be dismantled without considerable economic cost. What Islamabad appears to be attempting instead is diversification.

The logic is straightforward. Heavy dependence on any single external partner weakens bargaining power. Chinese financing helped Pakistan build electricity generation, transport infrastructure and other CPEC projects, but debt repayments and concerns over future financing have encouraged Islamabad to seek a wider range of investors. American capital, Gulf investment, multilateral financing and international bond markets can give Pakistan alternatives without requiring it to sever ties with Beijing.

The minerals sector illustrates both the possibilities and complications. CSIS has pointed out that some transport infrastructure required to move Pakistani mineral production is connected to Chinese-backed projects and supply routes. If Washington wants Pakistani minerals to contribute to diversified Western supply chains, investment may therefore be required not only in mines but also in logistics, processing and export infrastructure.

This creates an unusual form of competition. The United States is not merely competing with China for diplomatic influence in Pakistan. It is competing over financing systems, supply chains, standards, infrastructure and the destination of future Pakistani production.

For Islamabad, the best outcome would be to turn that competition into capital rather than confrontation. Pakistan needs enough diplomatic space to work with China on CPEC, the Gulf states on energy and investment, and the United States on exports, technology, minerals and finance without becoming an arena for zero-sum rivalry.

Geography has acquired economic value again

Pakistan's physical location has always influenced its relations with Washington. During the Cold War and the Afghanistan conflict, geography mattered principally for military access and regional security. In the emerging relationship, the same geography is acquiring economic meaning.

Pakistan sits close to the Persian Gulf, borders Iran and Afghanistan, connects towards Central Asia and possesses ports opening onto the Arabian Sea. It is also located near some of the world's most important energy routes.

The return of conflict involving Iran in 2026 made that strategic geography relevant again, but in a different fashion. Pakistan emerged as a diplomatic intermediary in efforts to reduce tensions between Washington and Tehran. Reuters reported that Pakistani mediation contributed to an interim US–Iran agreement in June 2026 after months of difficult negotiations.

By August, Pakistan was again engaged in diplomatic efforts as tensions intensified. Reuters reported on August 24 that President Trump had spoken with Field Marshal Munir before the Pakistani army chief travelled to Tehran, with Washington seeking Pakistani help in encouraging Iran to return to negotiations. The following day, Pakistani officials reported progress in talks aimed at preventing escalation and reopening the Strait of Hormuz.

This diplomatic role adds another layer to the bilateral relationship. Pakistan can communicate with Washington while retaining working relations with Tehran, Riyadh, Ankara and Beijing. That network gives Islamabad diplomatic utility that cannot be measured through trade statistics alone.

Yet mediation also carries danger. Pakistan shares a long border with Iran, depends heavily on Gulf energy routes, hosts strong domestic sentiment concerning regional conflicts and maintains close relations with Saudi Arabia. Becoming useful to Washington without appearing to become an instrument of American policy requires careful balancing.

The Strait of Hormuz illustrates why Pakistan has little choice but to attempt it. A prolonged closure or disruption would increase energy costs, damage Pakistan's external account and intensify inflation. Regional diplomacy is therefore not simply prestige-seeking. For Islamabad, de-escalation in the Gulf is an economic interest.

Security has not disappeared from the relationship

The shift towards commerce should not create the impression that the traditional security relationship is over. Afghanistan remains unstable, militant organisations operate across the region, and both governments retain counterterrorism interests.

The 2025 capture of Mohammad Sharifullah was a reminder that intelligence and law-enforcement cooperation can still produce outcomes valued by Washington. Rubio's April discussions with Dar combined minerals and tariffs with Afghanistan, counterterrorism and immigration.

The United States has also retained an interest in militant threats affecting regional infrastructure and foreign investors. As economic relations expand into mining and logistics, the distinction between economic and security cooperation becomes less clear. Protecting a billion-dollar mine, railway or energy project is both an investment issue and a security issue.

What is changing is the hierarchy. During the war in Afghanistan, security largely defined the relationship and economics followed. In the emerging model, security is increasingly one component of a wider relationship whose durability will depend on whether commercial interests develop independently of military crises.

That would be a major change. Security partnerships often expand rapidly during emergencies and contract when the threat changes. Investments in mines, factories, infrastructure and supply chains operate over decades. If American companies acquire durable commercial interests in Pakistan, bilateral relations could become less vulnerable to the abrupt swings that characterised previous eras.

The investment climate remains the hardest test

American strategic interest does not guarantee American private investment.

This distinction is frequently lost in Pakistani discussion. Governments can sign memoranda, arrange investment forums and announce large resource estimates. Private companies still make decisions according to expected returns, contractual security and risk.

Pakistan continues to face obstacles that can deter foreign investors: policy reversals, expensive electricity, regulatory uncertainty, difficulties in repatriating profits during foreign-exchange shortages, political instability, security concerns and a judicial process that can make large contracts vulnerable to prolonged dispute.

Reko Diq itself carries the memory of one such dispute. The project spent years trapped in legal conflict before being restructured. For multinational investors considering projects with operating lives of several decades, institutional memory matters.

Reuters noted in July 2026 that foreign investment in Pakistan remained constrained by recurring economic crises, security concerns, earlier restrictions on profit repatriation and the country's speculative sovereign credit rating. Economists interviewed by the agency also questioned whether additional American financial support could produce lasting benefits without continued reform of taxation, energy and state-owned enterprises.

The argument is difficult to dismiss. Geo-economics cannot substitute for domestic economics. A favourable relationship with Washington can open doors, but Pakistan still has to make projects commercially credible once those doors are open.

The danger of another transactional cycle

There is also a risk that the current improvement will reproduce an old problem in a new form.

Pakistan–US relations have repeatedly strengthened when Pakistan possessed something Washington urgently needed. During the Cold War it was geographical position. During the Soviet–Afghan war it was access to the Afghan resistance. After 2001 it was counterterrorism cooperation and logistical access. Today Pakistan offers several assets at once: critical minerals, diplomatic access to Iran, counterterrorism cooperation, a sizeable consumer market and a location relevant to Gulf and Central Asian connectivity.

These interests are real, but they may not be permanent.

American political priorities can change quickly. A different administration could place less emphasis on Trump's transactional diplomacy or judge Pakistan mainly through competition with China and relations with India. Commodity prices could make individual mineral projects less attractive. A deterioration in security could discourage investors. Another dispute over Afghanistan, proliferation or regional conflict could revive old mistrust.

Pakistan should therefore resist treating improved access to the Trump administration as the relationship itself.

The best protection against another cycle of intimacy followed by estrangement would be to create economic interests that survive political personalities. A US company operating a profitable mine, an American technology firm employing Pakistani engineers, Pakistani exporters serving long-established American customers and financial institutions earning returns from Pakistani infrastructure create constituencies for continuity that diplomatic goodwill alone cannot provide.

The real measure of Pakistan–US Relations 2.0 will be whether the relationship can remain valuable when neither country is facing an emergency.

Can the United States become an investment partner?

Washington also has decisions to make.

If the United States wants Pakistan to become part of diversified critical-mineral and industrial supply chains, commercial rhetoric will not be enough. High-risk projects in developing economies often require political-risk insurance, export credit, long-term financing and early public-sector participation before private investors enter.

Institutions such as DFC and EXIM were created precisely for this type of activity. The discussions held with Pakistan in 2026 suggest that Islamabad wants considerably greater use of these instruments.

American policy will also need consistency. Washington cannot simultaneously demand diversification away from Chinese economic influence while remaining reluctant to finance alternatives. China gained economic weight in Pakistan not simply through diplomatic declarations but because Chinese institutions were prepared to finance power plants, roads, ports and other projects at scale.

The United States does not need to replicate China's model. Its strongest advantages lie elsewhere: access to the world's deepest capital markets, advanced technology, private firms, export finance, institutional investors and one of the largest consumer markets on earth. A successful American approach would use those advantages rather than compete project for project with Beijing.

Pakistan, for its part, will need to understand that American economic engagement tends to demand commercially bankable projects, transparency and returns. The relationship cannot simply replace Chinese loans with American loans while leaving the domestic economic structure unchanged.

What Pakistan should want from Washington

The most valuable American contribution to Pakistan's economy may not be another large transfer of public money.

Pakistan's long-term interests would be better served by stable access to the US market, investment in export industries, technology partnerships, minerals processing, energy infrastructure, trade finance and improved access to private capital. These forms of cooperation increase productive capacity rather than merely financing existing deficits.

Information technology deserves particular attention. Pakistan already possesses a large English-speaking workforce and a growing technology-services sector. American firms are among the world's largest buyers of software, cloud services, business-process services and digital labour. The barriers to expansion in these sectors are often lower than in capital-intensive heavy industry.

Agriculture and food processing offer another area in which investment could raise both productivity and exports. Energy cooperation can reduce one of the largest costs faced by Pakistani industry. Minerals can generate foreign exchange, but greater value would be retained domestically if processing and associated industries are built inside Pakistan rather than exporting raw material alone.

Commercial diplomacy should therefore be evaluated by the type of economic activity it generates. A billion dollars invested in export-producing infrastructure has a different long-term effect from a billion dollars deposited temporarily in foreign-exchange reserves.

A relationship being rewritten by economic necessity

Pakistan and the United States are approaching each other in 2026 for reasons quite different from those that shaped most of their relationship.

Washington wants diversified supply chains, access to critical minerals, commercially useful partners and countries capable of supporting its regional diplomatic objectives. Pakistan wants export markets, foreign investment, development finance, improved access to capital and alternatives to excessive dependence on any one creditor or strategic partner.

Neither side is acting out of sentiment. That may be an advantage.

The older relationship frequently suffered because public language about partnership exceeded the actual overlap in national interests. When the strategic environment changed, disappointment followed. A more transactional relationship can be more predictable if both countries understand precisely what is being exchanged.

The evidence of change is already visible. US–Pakistan trade in goods and services reached approximately $11.5 billion in 2025. The two governments have been negotiating a wider trade arrangement. Washington has expressed interest in Pakistani critical minerals. EXIM has moved towards large-scale participation in Reko Diq. Islamabad has sought DFC involvement in energy, technology, infrastructure, agriculture and mining. Pakistan has also emerged as a diplomatic channel between Washington and Tehran.

None of these developments guarantees a durable partnership. Pakistan's investment climate remains difficult, mineral projects face serious security risks, the United States will continue to attach great importance to India, and Islamabad's relationship with China will remain central to its foreign policy. American administrations can change priorities, while Pakistani governments have often announced economic reforms faster than they have implemented them.

Yet the direction of the relationship is no longer difficult to identify. Pakistan and the United States are trying to move from a partnership in which Pakistan was valued mainly for what its geography could do for American security towards one in which that geography, its resources, its market and its diplomatic access acquire commercial value as well.

The transition will succeed only if investment follows diplomacy. Meetings at the White House can repair political access; trade agreements can reduce barriers; mineral diplomacy can attract attention; and American financial institutions can reduce project risk. None of these can compensate indefinitely for weak institutions, insecure infrastructure or an economy unable to compete.

For Pakistan, the opportunity is to convert renewed American interest into productive capacity rather than another temporary external lifeline. For Washington, the opportunity is to build influence through commerce without demanding that Islamabad choose between competing powers. If both can manage that bargain, Pakistan–US Relations 2.0 may become something the older relationship rarely achieved: a partnership that remains useful even after the immediate security crisis has passed.

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