Over the past two decades, Chile has been a place where businesses can operate in a regulatory environment shaped by steady and fair rules. In contrast, Argentina has lurched from crisis to crisis, placing extensive regulations on prices, taxes and capital controls that have made business—as well as life in general—difficult. Even from 2015 to 2018, when Chile had a nominally socialist president and Argentina had a nominally pro-market rightwing president, Chile’s regulatory environment and business culture still made it the heavy favorite for foreign investment.

However, when it comes to the lithium industry, that narrative about the two countries has just been flipped. In recent months, even as Argentina has suffered from a renewed economic crisis and hyperinflation, the country’s lithium industry has been prospering due to a relatively light touch by the government. The Argentine government has streamlined the permitting process, reduced bureaucratic hurdles and offered tax incentives to attract foreign investment in the lithium sector. Much of the regulation is managed at the state level, but many states have also made operating easy. As a result, companies are eager to jump into the Argentine market, while the companies already there—including Livent, Allkem, Ganfeng Lithium and Lithium Americas—are all making progress and likely to expand their production in the years ahead.

Meanwhile, on April 20, Chilean President Gabriel Boric announced a vague new policy to bring Chile’s lithium industry under greater state control. The proposal includes the creation of a national state lithium company similar to Chile’s national copper company, CODELCO; the involvement of the state as a majority shareholder in all future projects; and negotiation with the owners of the largest current projects to increase state involvement.

Following the announcement, the two largest lithium companies currently active in the country, SQM and Albemarle, lost over $8 billion in market cap. While both companies insist that operating in Chile is still possible and profitable, Boric’s proposal has left many investors and industry stakeholders questioning whether Chile will continue to be an attractive destination for lithium investment and development. At best, it could reduce the profitability of future operations, leading companies to reduce their exposure to the sector. An unlikely worst-case scenario, though one feared by some investors, is that the Chilean government could decide that lithium is a strategic asset and force the nationalization of reserves currently controlled by private companies.

The new rules for lithium in Chile are far from decided. Boric must now negotiate with the private companies already operating in the country and push legislation through Congress that would codify the new proposals. The legislature, which has rejected many of the president’s proposals in the past, is almost certain to moderate his agenda on lithium as well. Meanwhile, Boric’s proposal sets 2030 as the rough target date for finalizing the changes, meaning that Chile will have had two more presidential elections—and will probably have adopted a new constitution—by the time any new rules for lithium mining come into effect.

That is plenty of time for the proposal to change shape, and given Chile’s history, the country will find a path that protects private investment, even if the state gains some more influence in the sector. Chile is likely to create some sort of state lithium company, but the country can’t succeed without private investment, and Chilean policymakers know that. A responsible debate over the balance of future public-private partnerships is likely to take place.

If investors are too bearish on Chile, they are likely far too bullish on Argentina. Yes, the national government and the provinces have promoted lithium mining investment in an uncharacteristic pro-business manner. But the short-term outlook is challenged by continued hyperinflation, a peso that is hard to manage and regulations that make any profit-taking difficult.

Additionally, the Peronist coalition at the head of the current Argentine government is widely expected to lose the national election later this year; President Alberto Fernandez has already opted out of seeking reelection due to the country’s economic ills and his own unpopularity. The likeliest outcome in October is a government far friendlier to private industry and foreign investment across the country. That could usher in a period of great opportunity for the industry starting in 2024.

But Argentina’s history suggests the pendulum will swing against business yet again before the decade is out. And a profitable mining sector will be a tempting target for any future Peronist government that faces continued challenges in paying its bills. Mining projects require at least a decade, and likely far more, to make their return on investment worthwhile. But the private companies that are expanding in Argentina today are likely to see serious swings in regulations, taxes and currency rules that will challenge their ability to operate in a steady and predictable manner.

We should all be rooting for both Chile and Argentina to get it right when it comes to managing their lithium reserves. States should be working to achieve the best labor, environmental and social conditions for their populations. National governments and local communities should benefit from the profits of the mines. Countries should have opportunities to move up the global economy’s value chain, using the lithium that is mined in domestic manufacturing industries that provide jobs and economic stability, in order to move beyond the boom-and-bust cycle of raw commodities markets. And the world needs the lithium for storing renewable energy and managing the electrification of transportation.

Yet, private mining companies also need to operate profitably, and therein lies the challenge. At a certain level, taxes, royalties and regulations eventually cause mines to become unprofitable, meaning companies and investors will either halt operations or refuse to put in additional money for expansion.

As the narrative has shifted toward Argentina and against Chile in recent months, perhaps the biggest issue is that the two countries are seen in competition with each other. One’s loss is the other’s gain, as investors in the sector search for regulatory and tax regimes that make them the most profit and give their businesses the greatest security.

Speculation about an OPEC-style South American lithium cartel that would include Bolivia—the so-called ABC lithium triangle—has resurfaced in recent years, but it is unlikely for a variety of reasons, including the nature of the global lithium market. Still, if Argentina and Chile—and eventually perhaps Bolivia—could agree to some common frameworks and minimum standards, it would benefit their economies, but also the mining industry, which suffers from giant, back-and-forth policy swings between nationalization and a race to the bottom on private regulation. Getting this nascent industry right will be crucial to both countries, as well as the world’s green transition, for decades to come.

***James Bosworth is the founder of Hxagon, a firm that does political risk analysis and bespoke research in emerging and frontier markets. He has two decades of experience analyzing politics, economics and security in Latin America and the Caribbean.