The United States, China, Japan, and most advanced economies are actively engaged in attempting to secure new sources of lithium—a key element in the transition of the global economy from fossil fuels to renewables. This metal is central to the mass adoption of electric vehicles (EVs), energy storage units that are key to power grids, and batteries for portable personal computers and cellphones. This is elevating the importance of the “Lithium Triangle” countries of Argentina, Bolivia, and Chile, which hold most of Latin America’s estimated 60 percent of global lithium reserves. There is a risk that failure to become involved in the Lithium Triangle in the twenty-first century could be akin to sitting out the development of Middle Eastern oil in the twentieth century. The equation is simple—access to energy sources equals power.
China has a considerable edge over its competitors in lithium—reflected by the fact that the Asian country is the world’s leading maker of batteries. According to S&P Global Market Intelligence, in 2021 China accounted for 79 percent of Li-ion batteries, immediately followed by the United States at just 6.2 percent. China’s overwhelming dominance in batteries, comes from possessing over half of the world’s lithium refining capacity.
However, it is one thing to have refining capacity and another to possess the actual metal. While China dominates lithium refining and battery production, its overall lithium reserves are estimated at 4.5 million tons, which places it sixth in the world—well behind Bolivia, Argentina, Chile, the United States, and Australia. China’s problem is that its demand for lithium exceeds what it can supply domestically. China’s demand is driven by a number of forces including increasing accessibility of high-end, low-cost technology, rapid EV adoption, rising standards of living, and a tech-savvy younger generation. It is also due to China’s understanding that the next round of great power politics will be decided by who reaches low or no carbon-based energy. Yet, without lithium those needs cannot be met.
To obtain lithium, China’s corporate sector—much of it state-owned—plays an important role. Two of the world’s largest lithium miners, Ganfeng and Tianqi, are Chinese. Ganfeng, a major supplier of batteries to Tesla, has operations in Argentina. Tianqi owns a 28 percent share of Chile’s major basic materials and chemical company SQM—one of two companies granted a license for lithium operations in the Andean country. In 2021, another of China’s large mining companies, Zijin Mining, added lithium to its portfolio through a Canadian company operating in Argentina and, in 2022, announced that it was going to invest USD $380 million to construct a lithium carbonate plant.
World’s 10 Largest Lithium Companies (2022)
|Rank||Company||Market capitalization (in billions $)||Country|
|2||SQM (Sociedad Químia y Minera de Chile)||29.6||Chile|
|8||Livent (brine comes from Argentina)||6.2||U.S.|
|9||Sichuan Yahua Industrial||4.8||China|
Source: Raul Amoros, October 14, 2022.
The United States remains behind China in lithium mining and battery production. It holds an estimated 3.6 percent of global lithium reserves with a single lithium mine in Nevada (though construction of others is planned) and refines only 2.1 percent of global lithium.
In the 1990s, the U.S. was the leader in lithium production. The industry, however, was decimated by a combination of cheaper production overseas, stringent environmental regulations, and the expansion of indigenous peoples’ rights—who often hold property where there are lithium mines. The big push to go green has changed U.S. priorities—if the United States does not develop domestic sources of lithium or secure additional sources overseas, the United States finds its national security at risk as China increases its own access to this resource.
To catch up with China the Biden administration’s Inflation Reduction Act (2022) included considerable incentives for domestic battery production and mining. According to the act, 100 percent of battery manufacturing must take place in North America. Additionally, the components used in EV batteries must not be “extracted, processed, or recycled by a foreign entity of concern.” Considering that the Biden administration wants half of all U.S. vehicle sales to be electric by 2030, developing a viable battery industry and lithium supplies has assumed greater urgency.
The lithium boom is good news for the Lithium Triangle. In 2021, Argentina and Chile together produced nearly 30 percent of the world’s lithium, with the balance largely produced by Australia and, to a lesser extent, China, Brazil, and Portugal. In 2022, the lithium surge was evident in the profitability of Chile’s SQM, which accounts for 19 percent of global market share and which saw its net income skyrocket by 937 percent in the third quarter of 2022. The forward guidance for lithium is its continued strength.
Argentina, Bolivia, and Chile now have several lithium suitors at their doors. Through the first two decades of the twenty-first century China emerged as an important trade partner for all three countries and an important lender of development funds through its state-owned development banks. Indeed, China lent a cumulative $17.1 billion to Argentina and $3.4 billion to Bolivia between 2005-2020.
One country where China has been particularly active in trying to bolster engagement is Bolivia. China’s efforts to become engaged in Bolivia’s lithium industry must be seen to the backdrop of the South American country under the leadership of President Evo Morales (2006-2019), who took the country leftward, nationalizing the oil and gas sector in 2006, building up the state sector at the cost of the private sector, and aligning La Paz with Caracas and Havana. Decidedly wary of Western companies, Morales publicly acclaimed his admiration of China’s development model and adopted a pro-China stance on many foreign policy issues. For China, Morales was a welcoming partner as well as being the head of a country with considerable natural resources.
However, not everything has gone China’s way. In early 2019 in Bolivia, Xinjiang TBEA Group won a competitive bid for a 49 percent stake in a USD $2.39 billion planned joint venture with YLB to produce lithium and other materials. The Chinese company was to pay for the initial investment and YLB would finance its share with future lithium production. The Bolivian decision was partially influenced by China’s dominant role in battery production. Indeed, President Morales stated, “Why China? There’s a guaranteed market in China for battery production.” Bolivia’s political instability, including the ouster of president Morales, however, delayed the project.
For its part, the United States has sought to be more proactive in assisting its lithium companies. However, most of the support is oriented within the U.S. as well as its partners under the U.S.-Mexico-Canada Agreement (USMCA). Indeed, there is a degree of frustration over what some consider low U.S. government support—lacking a U.S. ambassador to Bolivia since 2008, asserted protectionism in the Inflation Reduction Act (that complicates the value-added process for some countries), and less state financial support then China or Russia. Indeed, the disqualification of U.S.-based EnergyX in Bolivia in 2022 for a lithium project prompted the company’s CEO to state: “China and Asian countries do the majority of the investment in South America and we’re really falling behind. China is literally investing billions, Korea’s investing billions, Russia is trying to invest billions.”
EnergyX is not the only company to attempt to gain access to Bolivia’s lithium reserves and failing. European companies, such as Germany’s ACI, have also run into problems, including local protests against what have been perceived as unfair allocation of revenues and concerns over pollution.
The ability of China, the U.S., and other countries to secure lithium in Argentina, Bolivia, and Chile is complicated and must take into consideration a host of factors. These include environmental concerns, indigenous peoples’ rights, the nature of national legal regimes that define the rules and regulations concerning mining, corruption, project location, capital costs, and lead times—lithium mines require between three and seven years to build and be operational. While a handful of lithium mines are up and running in the Lithium Triangle, the race is on to tap these enormous reserves.
Looking ahead, the path to the commanding heights of the green revolution will see Argentina, Bolivia, and Chile more intensively wooed by China, the United States, and other countries. The excitement of going green is going to run into the reality that while lithium exists in abundance in the Lithium Triangle, it is going to be a complicated process of getting it out of the ground and eventually being able to drive down the road in a shiny new electric vehicle.
*Scott B. MacDonald is Chief Economist at Smith’s Research & Gradings, Research Fellow at Global Americans, and Founding Member of the Caribbean Policy Consortium. His latest book, The New Cold War, China and the Caribbean, was recently published by Palgrave Macmillan.