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The U.S. has renewed efforts to shore up its relationships in the Americas due to Washington’s need to secure supply chains and reduce outside influence in the Western Hemisphere. While this proves an uphill battle in many countries, Paraguay stands out as a longstanding, reliable partner in the region. Moreover, the U.S.-Paraguay relationship is poised to assume deeper strategic value given the current geopolitical environment. Paraguay’s Peña government has positioned the country to leverage its advantages such that Asunción can be seen as an indispensable partner by Washington.
The U.S. and Paraguay share complimentary interests which serve as a strong foundation for growing ties. Washington currently prioritizes the reduction of its economic dependency on China and increasing supply chain security. It plans to accomplish this through nearshoring. This strategic goal spurred the creation of the Americas Partnership for Economic Prosperity (APEP). The U.S.-led program that aims to increase the region’s competitiveness and economic growth by focusing on entrepreneurship, clean hydrogen, sustainable food production, digital workforce development and civilian space cooperation. Many of the group’s members are small to mid-sized economies where U.S. funds can have a greater impact. It also is segmented according to cooperation areas which match the strengths each country brings to bear. Under this structure, Paraguay emerges as an attractive addition to the program.
From the Paraguayan perspective, better ties with the U.S. represent a path towards economic development and the opportunity to play a larger role in regional affairs. In the past, Paraguay typically relied largely on Brazil and Argentina for trade and investments. With Argentina’s economy in shambles and Brazil focused more on revitalizing its domestic economy, Paraguay is in the market for stronger economic partners and the U.S. fits the bill. Despite concerns of recession, the U.S. has plenty of deployable capital for furthering its strategic interests. Most importantly, Paraguay can provide the U.S. with the type of economic and security partnership Washington wants in the region due to Asunción’s recognition of Taiwan and manufacturing potential.
Paraguay’s recognition of Taiwan positions Paraguay as a strong candidate for manufacturing strategically sensitive products – like chips, semiconductors and data centers – that serve U.S. markets. In May of this year, National Security Advisor Jake Sullivan met with President Santiago Peña of Paraguay to discuss mobilizing U.S. private sector investment to develop Paraguay’s digital and physical infrastructure. Paraguay expressed its interest in joining APEP. Paraguayan officiinfrastructure, developing – Google, Nvidia, Asus, and Meta – to discuss plans for improving energy infrastructure, developing processor manufacturing, supporting AI projects and establishing data base centers.
Paraguay’s foreign policy alignment also facilitates partnering with U.S. allies in Asia that can help Asunción grow its digital capabilities. Paraguay works directly with Taiwan to build a local human capital pool needed for hosting technology manufacturing and information hubs. Taiwan also helps Paraguay develop its cyber security capabilities and offers technology transfers. Additionally, the Peña government has supported numerous exchanges with South Korean counterparts on technology, digitizing the government and the ever-sensitive topic of 5G. Asunción is also using technology exchanges with Korea to help improve border security which serves U.S. interests in stemming the flow of organized crime and illicit goods. Lastly, Paraguay also works with Japan on communication, information technology, nano satellite and increasing human capital.
Paraguay’s abundant hydroelectricity supply supports the expansion of manufacturing, particularly as it relates to green technology. Hydroelectric dams generate all the country’s electricity, which keeps prices low. Paraguay only consumes about 30 percent of the power it generates and exports nearly double that amount to Brazil and Argentina. The country currently does not have the infrastructure or demand to domestically consume all the electricity it produces. However, with more investment in infrastructure, Paraguay could consume more of what it generates. Building out such infrastructure and demand requires more foreign capital and FDI. Being a large source of water and cheap electricity makes Paraguay an extremely attractive location for semiconductor production, AI facilities and data centers – all areas that figure prominently as a pillar in APEP.
The Peña government has made strides in positioning Paraguay as an attractive destination for outside investors. For starters, the government streamlined the country’s tax system to makes it easier for companies to operate in the country. The government’s technocratic approach to economic management also helped lay a strong foundation for sustained growth, increased resiliency to shocks, economic diversification and increased access to capital markets. Peña’s actions and economic orientation were the final catalyst for Moody raising Paraguay’s sovereign credit rating to investment grade with a stable outlook. The new investment-grade status suggests the Paraguayan economy is moving in the right direction and being recognized by external and non-governmental organizations.
Considering the economic changes in Paraguay and the global economy, Paraguay would be a logical destination for more U.S. business investment. The country offers low tax, cheap energy costs, low labor-cost and access to larger markets. In addition to economic initiatives, Paraguay has a long-standing security relationship with the U.S. and its geographic location provides Washington with a foothold in the center of South America. Washington is in need of strong partners in South America, and Paraguay is positioning itself to answer the call.
Allison Fedirka is a fellow at Global Americans, Director of Analysis at Geopolitical Futures, and co-founder of Allonia Group.
