Subnational Diplomacy and Geoeconomics: The Battle for Argentina’s Lithium
7 May, 2026.
Anna Anzalone
CityDiplomacy.org
Introduction
Lithium is not just a mineral. In the context of the global energy transition, it has become a geopolitical asset, one that major powers are competing to secure with the same urgency that once drove competition over oil. As the geoeconomic competition accelerates, the territories with lithium reserves have found themselves at the centre of a new kind of great-power rivalry, fought through investment flows, supply chain agreements, and corporate acquisitions rather than military force (Lee, 2025). With the world’s second-largest lithium reserves, Argentina plays a central role, particularly in the Northwestern provinces of Jujuy, Salta, and Catamarca. Indeed, in a geoeconomic era defined by competition over critical minerals, this is especially crucial for subnational governments, who see in lithium an opportunity to advance their interests and achieve their development goals.
Under the country’s federal framework, these provinces hold constitutional authority over natural resources and can negotiate directly with foreign investors, without necessarily going through the national government. On paper, this makes them genuine diplomatic actors, with subnational governments engaging with global markets on their own terms. In practice, however, rather than enabling provinces to extract strategic value from their resources, this decentralised framework has often trapped them in a race to the bottom and a lack of effective local development, with little leverage to impose meaningful conditions on international corporations (Gonzalez Jauregui, 2024). In other words, the geoeconomic pressures that have elevated Argentina’s lithium provinces onto the global stage are the same pressures that constrain their ability to negotiate on advantageous terms.
To understand this complex interplay between geoeconomic pressures and subnational diplomacy in the Global South, this article will use the case of lithium extraction in Argentina to assess the extent to which geoeconomic disputes over lithium reveal the structural limits of subnational diplomacy in the Global South. As we will see in the following sections, the competitive geoeconomic dynamics that drive global demand for lithium generate short-term incentives at the subnational level that systematically crowd out the longer-term development outcomes subnational diplomacy is supposed to serve, leaving provinces formally empowered but structurally exposed.
Analytical Framework
The existing literature on city and regional diplomacy tends to be rather optimistic. Subnational governments are portrayed as cooperative networkers (sharing best practices, attracting investment, advancing local development goals, among others) in ways that complement rather than challenge the state system (Acuto, 2013; Curtis, 2016). This framing works in areas such as climate policy or urban planning, where cities and regions genuinely do operate in broadly cooperative transnational networks. However, when we apply this lens to more sensitive contexts like the Lithium Triangle, the overall picture is not so clear.
Turning back to the case of the Northwestern region in Argentina, when a province sits down to negotiate with transnational corporations that have massive resources and strategic mandates to secure a position in the global supply chains (take Ganfeng Lithium as an example, a company backed by the Chinese state), the framework of horizontal networking and mutual gains do not necessarily apply. In the geoeconomic era, characterised by the use of economic instruments to advance geopolitical objectives and to secure access to critical minerals, the relevant question is not whether provinces can engage internationally (they are already doing so), but rather how they can do so on terms that serve their own development interests, and not as convenient access points for external actors with much larger strategic ambitions. Through this lens, subnational diplomacy in the Lithium Triangle is not a story of local empowerment, but rather one of structural asymmetry and vulnerability.
Argentina’s federal structure adds a further layer of complexity. Because the provinces retain control over natural resources and enjoy a degree of international agency, they possess genuine formal power. However, they tend to exercise it in isolation, competing against one another, while tensions also emerge between the provinces and the federal state (Juste, 2024). The result is a structural trap: the very decentralisation that gives provinces their diplomatic autonomy also prevents them from building the collective bargaining capacity they would need to negotiate effectively with transnational corporations. It is precisely at this intersection, between the empowerment that subnational diplomacy literature celebrates and the structural constraints geoeconomic competition imposes, that this article situates its analysis. By bringing both frameworks into dialogue, this article aims to offer a more grounded account of what subnational international engagement actually looks like in the actual international arena, guided by the principles of geoeconomic competition and the quest for critical minerals.
Subnational Diplomacy in the Geoeconomic Era. The Case of Ganfeng Lithium in Argentina
To understand how this complex relationship between subnational diplomacy and geoeconomics operates in practice, we need to start with the institutional design of subnational diplomacy in Argentina. The 1994 constitutional reform and the 1997 Mining Code returned control over natural resources to the provinces, granting Jujuy, Salta, and Catamarca the right to negotiate concessions directly with foreign investors. A national royalty framework does exist, but it has never been updated to reflect changes in lithium’s strategic value (Gonzalez Jauregui, 2024). More importantly, Argentina left the field open to the provinces to navigate the vacuum of a robust legal framework for extraction, in contrast to countries like Bolivia and Chile, which have used to assert state control over their extraction. While Bolivia nationalised its lithium deposits outright, Chile established a mandatory state participation model through CORFO. Argentina, by contrast, lacks a binding federal framework to coordinate provincial negotiations, a common baseline for the conditions foreign investors must meet, and a shared position on industrial linkages or technology transfer. As a result, the competitive advantage lies entirely with the investor (who can, and does, pit jurisdictions against one another), and provinces have largely competed against each other for investment, often under acute fiscal pressure and with limited administrative capacity (Gonzalez Jauregui, 2024).
No company illustrates this dynamic more clearly than Ganfeng Lithium. Currently holding a significant share of its global lithium reserves in Argentina, Ganfeng has made the country a cornerstone of its long-term supply strategy (Treacy, 2025). The company has pursued a strategy of territorial consolidation, acquiring adjacent concessions across the entire salt flats rather than isolated projects. The Pozuelos-Pastos Grandes and Mariana operations in Salta are the clearest examples of this logic by which Ganfeng secures contiguous concessions and eliminates competitive pressure from adjacent operators, making it difficult for the province to renegotiate terms mid-process (Treacy, 2025). Combined with its financial depth and long-term planning horizon, advantages that simply cannot be matched by any individual provincial administration, this gives the company a structural upper hand in every negotiation it enters. Crucially, Ganfeng’s model is built around extraction, not transfer: the company retains all processing, manufacturing, and technological know-how within its own supply chain, leaving provinces with raw material exports and little else. However, faced with an investor willing to commit large capital quickly, provincial governments find it very difficult to hold out for better terms. The promise of jobs, fiscal revenues, and economic activity creates intense political pressure to close deals fast. In this context, subnational diplomacy becomes less about strategic positioning and more about not losing the investment to a neighbouring province.
Despite holding constitutional ownership over the resource, Argentine provinces capture an effective return of approximately 0.6% of total lithium value, once extraction costs are deducted from the 3% royalty base (Gonzalez Jauregui, 2024). This outdated regulatory framework, designed before lithium was as central as it is today, has created space for informal arrangements between provincial authorities and extractive transnational companies. This way, a self-reinforcing process emerges, where the structural and governance problems reinforce each other. The lack of a development model coherently devised among the federal state, the provinces, and private actors has led to disjointed initiatives, investments without technology or know-how transfer, and a value chain that still lags behind those of Bolivia and Chile. Compounding this, political alternations in the Argentine presidency have generated paralysis, delays, and discontinuities in subnational initiatives, producing uncertainty for investors and firms alike (Juste, 2024). In this sense, while it is true that structural constraints exist, provincial governments have actively exploited the regulatory gap to pursue deals that deliver short-term political wins at the expense of long-term fiscal and industrial capture.
These tensions become especially visible when examining attempts to move beyond raw extraction toward industrialisation. In 2021, the province of Jujuy signed a Memorandum of Understanding (MOU) with Ganfeng exploring the possibility of establishing a local lithium-ion battery manufacturing plant. At the time, this was presented as a step toward integrating Argentina into higher-value segments of the global battery supply chain and the promise of development. Five years since then, nothing has happened: Ganfeng continues to rely on its existing manufacturing infrastructure in China, and no battery plant has been established in Jujuy (Treacy, 2025). However, this should not be surprising. China’s broader industrial strategy is precisely oriented toward consolidating its dominance in global value chains and securing control over critical minerals like lithium at the extraction stage, while retaining all downstream processing and manufacturing capacity at home (Treacy, 2025; Juste, 2024). Ganfeng’s reluctance to establish local production facilities is consistent with Beijing’s ambition to position Chinese firms as the principal actors in the global battery supply chain. In this context, the non-binding nature of the MOU functioned more as a political instrument that suited narrative questions in the short-term than as a genuine commitment to local industrialisation.
Finally, beyond the fiscal and industrial dimensions, it is necessary to consider the environmental and social costs, especially taking into consideration that the Puna region is water-intensive and its ecosystem is arid and quite fragile. In fact, several projects have raised serious concerns about impacts on brine aquifers, wetlands, and the water rights of indigenous communities (Licata, 2024). Even if community consultation processes are legally required under Argentinian law, local communities have been ignored or left aside from the discussions. For instance, in the Salar de Olaroz, transnational operations have actively exploited language barriers, failing to provide adequate information to local populations whose primary language is Quechua, thus bypassing genuine local consent (Licata, 2024). Highlighting this severe governance gap, Ganfeng Lithium recently received a remarkably low score of just 12.7 out of 100 from the World Benchmarking Alliance, exposing major shortcomings in transparency, social responsibility, and human rights practices (Treacy, 2025).
Taken together, these dynamics observed in the Argentine case show that when subnational diplomatic engagement collides with the logic of geoeconomic competition, the optimistic assumptions of that literature (in other words, that local actors can leverage international engagement for development, that formal authority translates into real bargaining power, that investment attraction and long-term planning can go hand in hand) start to break down. Even if provinces are not passive actors, they are operating in an environment that consistently rewards speed over strategy and short-term gains and immediate results over sustainable outcomes. In other words, the further subnational diplomacy moves into politically contested, resource-driven terrain, the more the cooperative, development-oriented image it projects gives way to something messier and considerably less empowering, and this trend seems to deepen even further in countries of the Global South.
Policy Implications
The case of the Northwestern Argentine provinces and the lithium sector compels us to rethink the boundaries and assumptions of subnational and regional diplomacy. Mainstream literature often frames subnational internationalisation as a predominantly cooperative arena where local governments effortlessly network, share knowledge and expertise, and attract foreign investment to foster local development. However, the Argentine experience reveals a much more complex scenario characterised by profound institutional friction and conflict of interests, especially in the context of global resource competition and the asymmetries between actors, which subsequently leaves subnational governments equipped with constitutional authority but with limited structural power. This reality suggests that policymakers and scholars must re-evaluate subnational diplomacy in the Global South not merely as an opportunity for global integration, but as a space of significant geoeconomic vulnerability that requires robust institutional safeguards.
To overcome this vulnerability and escape the trap of short-term incentives, subnational governments must fundamentally rethink their diplomatic negotiation strategies. Local governments now prioritise quantitative foreign direct investment, and the sheer volume of extraction projects to secure immediate, albeit minimal, fiscal revenues (Lee, 2025). However, if subnational diplomacy is to function as a genuine tool for development, it must shift towards qualitative agreements, making technology transfer, local research and development (R&D), and downstream industrial linkages, such as battery component manufacturing, non-negotiable conditions for resource access (Gonzalez Jauregui, 2024). Indeed, relying solely on corporate “goodwill” or non-binding MOUs has proven highly ineffective in the face of the aggressive vertical integration strategies pursued by companies such as Ganfeng Lithium (Treacy, 2025).
Furthermore, subnational diplomacy must incorporate strict socio-environmental and governance standards into its international agreements to prevent severe ecosystem degradation and protect the rights of indigenous communities (Licata, 2024). A clear benchmark for this approach can be observed in neighbouring Chile. Under its evolving governance models and public-private partnerships, such as the NovaAndino Litio joint venture, the State has established mandatory prior indigenous consultation as an inescapable structural requirement before formalising any project.
Ultimately, to effectively counter the overwhelming bargaining power of transnational giants, a formalised framework of coordination between the federal and subnational governments should be developed (Lee, 2025). Establishing a cohesive national strategy, in which the national government acts not as an obstacle to local autonomy but rather as a strategic facilitator, would help bridge local diplomatic efforts and enable subnational governments to negotiate from a position of collective strength, rather than competing against one another in a race to the bottom (Gonzalez Jauregui, 2024). Recent institutional innovations, such as the creation of the Federal Council for Foreign Relations and International Trade in Argentina, represent important steps in the direction of better coordinating local and national external action, but the efforts have so far remained limited.
Conclusion
Lithium started this article as a geopolitical asset that major powers are competing to secure through investment flows, corporate acquisitions, and supply chain control rather than military force (Lee, 2025). Yet, it ends as something more uncomfortable: a clear case study in how geoeconomic competition can hollow out the developmental promise of city and regional diplomacy from the inside. What the Argentine case ultimately shows is that the geoeconomic pressures that brought Jujuy, Salta, and Catamarca onto the global stage are the same pressures that constrain their ability to operate on that stage on their own terms. Indeed, the result is a self-reinforcing dynamic in which short-term incentives consistently crowd out the longer-term developmental outcomes that subnational diplomacy is supposed to deliver. Provinces remain formally empowered but structurally exposed, cementing a «new dependency» where they capture marginal fiscal rents while absorbing the heaviest socio-environmental costs of extraction (Chandran, 2025; Gonzalez Jauregui, 2024).
Ultimately, the aim of this article is not to show that subnational diplomacy is ineffective in the Global South, but rather that legal autonomy on its own is not enough. Without qualitative binding agreements, strict socio-environmental safeguards, and the collective bargaining power that no individual province can generate alone, subnational diplomacy in geoeconomically contested terrain risks becoming less a tool for development and more an instrument for those who jeopardise the agenda. For this reason, the region must develop a robust multi-level coordination capable of uniting the fragmented regions into a unified national strategy that allows it to tackle contemporary challenges.
References
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