Building on Competitive Advantages: Creating a Hemispheric Production Chain

Often referred to as “white gold,” the largest untapped lithium deposits are in the “lithium triangle,” between Bolivia, Argentina and Chile, constituting 60% of global reserves. Bolivian President Luis Arce aims to position his country as a global leader not only in lithium production but also in developing new lithium batteries and related products, catering to the increasing demand amid the shift to cleaner energy and transportation. The Bolivian government’s partnerships with China and Russia to establish lithium extraction and processing facilities in the southeast have sparked concerns in the United States. U.S. officials worry about the perceived aggressiveness of Chinese companies in negotiations and the potential reinforcement of an extractive model with limited local development. The Bolivian government dismisses these concerns as “American imperialism” and an “attempt to weaponize lithium to undermine democracies.”

Although the Bolivian government has invested significant time, effort and resources in developing its lithium industry with mainly Chinese and Russian capital, it seems that the window of opportunity to capitalize on the surging demand for lithium is closing, with China, the European Union and the United States rapidly dominating the market. For instance, China already produces 79% of the world’s lithium batteries and controls approximately 60% of the global extraction market. In essence, China has established a robust supply chain and production infrastructure that would be extremely challenging for Bolivia to compete with on its own.

If Latin American countries establish their own local lithium-based industries with limited foreign capital, there is a risk of a vulnerable state-owned company becoming overly reliant on just a few buyers. This scenario may result in a lightly industrialized base, primarily centered on mineral extraction and transportation, which contrasts with the preferences of many Latin Americans, as it involves minimal participation in highly value-added labor. Alternatively, the “lithium triangle” countries could collaborate as a bloc to collectively extract, process and manufacture lithium-based products in a coordinated effort, enabling them to effectively compete in the international market. The Americas Partnership for Economic Prosperity could prove to be a platform or a blueprint on how such objective could be achieved.

U.S. companies are already involved in significant lithium-extraction operations in Chile and Argentina, with established manufacturing and logistics networks in Mexico, Brazil, Argentina and Colombia. Developing regional clusters of economic development is an objective that both the United States and other countries in the region have in common, a unique opportunity where national interests (industrialization for Latin America and de-risking for the United States) and the tools (nearshoring) come together. Bolivian lithium could serve as the initial phase of a production chain, with factories in Argentina and Chile producing batteries, while Andean and Central American countries contribute to the lithium platforms, ultimately delivering a high-quality product to the U.S. market.

Building Bridges: Strengthening the Resilience of Local Institutions and Communities

Extractive economic institutions, such as the ones that could potentially develop in Bolivia with the advent of lithium, could have the opposite effect of what the Bolivian government and its people expect, strengthening socioeconomic exclusion in an already historically unequal country. Extractive industries also have a proven record in some cases that has resulted in significantly negative effects for the environment, biodiversity and even violent conflict. In the specific case of lithium processing, the current extraction methods require substantial amounts of water: approximately 500,000 gallons per ton of lithium. Consider such a stress on a local water supply for a country with a history of social instability due to water scarcity.

The United States can work with local institutions to equip them with tools and capacities to overcome the potential challenges of lithium extraction. Specifically, the Department of Energy can partner with its Bolivian counterparts, mainly state-owned company Yacimientos de Litio Boliviano, for academic exchanges and joint research as well as development projects for more efficient batteries and lithium production methods. Such technical programs could begin to build some trust between the United States and Bolivia, as well as prevent potential socioeconomic conflicts related to water access and environmental degradation, contributing to the national industrialization process.

Local leaders often find it nearly impossible to confront state-owned companies and foreign powers. The United States and international civil society can play a crucial role in assisting local communities by enabling them to voice their concerns and ensuring accountability from both governments and companies in the face of these challenging situations. By leveraging existing relationships and local networks, civil society organizations can provide a platform to highlight future conflicts and connect leaders with partners and institutional avenues to address them. Such organizations can even serve as a bridge between local leaders and the Bolivian government, positioning themselves not as a confrontational actor but rather a constructive partner.

A New U.S. Approach to Bolivia

Instances such as this one, where the United States directly competes with strategic adversaries in Latin America, present a valuable opportunity to reevaluate the current U.S. strategic approach and explore fresh perspectives for engaging with the region. Given the significant Chinese economic influence in the Bolivian lithium market and the challenging diplomatic relations with Bolivia’s ruling party, Movimiento al Socialismo, an approach that centers on attempting to outspend and surpass China in the local lithium market, coupled with securitized responses to energy infrastructure developments, would not only prove highly unproductive but also contribute to reinforcing local biases against U.S. foreign policy. This, in turn, could steer Latin American governments toward closer alignment with China and Russia.

What would an efficient foreign policy that both appropriately competes with China and Russia, builds bridges with local governments and satisfies the U.S. mineral needs looks like? In the first place, it would leverage the U.S. network of commercial allies in the southern cone to shape a regional production chain that both fosters domestic sustainable development and satisfies the world’s mineral needs. Additionally, regarding Bolivia, the United States could explore potential areas for technical cooperation in research and development, facilitating the transfer of capacities for more efficient and environmentally responsible lithium-extraction techniques as a trust-building measure. Lastly, the United States could enhance and continue supporting its people-to-people relationships, providing platforms for local and vulnerable communities to channel their human rights, democratic and environmental concerns surrounding energy and mining developments.

Bolivia and the other countries of the “lithium triangle” are on the cusp of a global transformation that could either leave them in a condition of deep dependency, or sustainable development and economic buoyancy. While it is up to the region to find its own avenues for progress, cooperation and reaffirmation of sovereignty, the United States is in an unparalleled position to accompany these countries in such a process by providing them the tools and capacities to navigate these turbulent waters. As such, the competition with China is not just a zero-sum game revolving around access to key materials and markets but could be an opportunity to strengthen democratic stability and prosperity in the region.

Luke Chan was a summer 2023 visiting scholar with USIP’s Latin America Program.