SHANGHUI BUYS SMITHFIELD: A LITTLE PORTFOLIO ADJUSTMENT ELICITS JINGOISTIC SCREAMS

5/29/13

Chinese food company Shanghui today announced that it will be acquiring Smithfield Foods for $4.7 billion.  Smithfield may not be an American icon, but several of its brands, including Armour, once near and dear to the family of yours truly, are.

One can already hear the jingoists screaming about the Chinese taking over yet another great American company, a part of our American heritage, much as they did when Chinese oil company Cnooc tried to buy Unocal in 2005.   The cries of the self-styled patriots were successful then.   But I have news for the jingoists now, much as I did in 2005:   You’re too late.

When the Chinese buy companies, they are merely shifting their portfolio of dollar denominated assets from treasury securities to private companies.   They are exchanging, if you will, financial assets for hard assets, ultimately.   The time to get all excited about the “Chinese taking over America” is not when the Chinese rearrange their American assets but, rather, when they accumulated those assets in the first place.  They acquired those assets by running huge trade surpluses with the United States when we bought all their toys, electronics, clothes, etc.  Did we think they would be satisfied to meekly put such assets into financing our huge public deficits and our brobdingnagian private acquisitiveness?   Did we think there would never come a day when the Chinese would want to own the very productive sinews of our economy, our iconic American companies?   Did we even realize what was going on when we let our desire for cheap goods trump our sense of perspective?

I have no public policy solutions here; as a free trader, I would not advise erecting tariff walls around our country.   And given our dependence on Chinese capital, building such barriers is now impossible.   But perhaps a little personal perspective, and sense of responsibility, would have been in order starting, oh, about twenty or so years ago.   It’s too late to get all hot and bothered about the “Chinese conquest of America” when we willingly gave them the money to conduct that “conquest.”

Two more things…

First, is it all that much more dangerous for the Chinese to be owning American companies than to be holding their enormous proportion of our public debt?  One could easily argue that it is not.

Second, this problem may take care of itself as the Chinese become less competitive on the wage front and/or the Chinese focus shifts toward building a consuming middle class at home.   Or maybe the Chinese will adopt the Japanese custom of becoming big spending top-tickers, get discouraged, and leave the field.  Let’s hope so, if only to avoid the addle-brained screaming we hear when the Chinese merely want to diversify the portfolio we have provided them.