Is All the Handwringing Over the Smithfield Deal Just Hogwash?

Get used to calling your Smithfield ham Shuanghui International ham.

American bacon lovers have been jarred to learn that Smithfield Foods, the largest producer of pork in the United States, is likely to be acquired by Chinese-owned Shuanghui International in a $4.8 billion buyout.  According to the Financial Times, “Shuanghui plans to use the Virginia company to export pork to China from the U.S., and to learn how to run a global meat processor without the kinds of food safety problems that have damaged the reputations of Chinese producers.”

Photo by Chewy Chua
Photo by Chewy Chua

That hasn’t allayed everyone’s fears, however. Some observers view the deal as yet another indication of China’s rise and America’s fall. A national security panel must review the transaction to make sure it doesn’t threaten the United States. Food safety groups are sounding alarms.  So are politicians.

“To have a Chinese food company controlling a major U.S. meat supplier, without shareholder accountability, is a bit concerning,” said Sen. Charles Grassley in a statement. “How might this deal impact our national security? What role does the Chinese government play in Shuanghui, like it does in so many other ‘private’ companies?”

Peter Drucker would have found such worries familiar—and he would probably not have shared many of them. In the 1980s, when Americans were alarmed by huge inflows of foreign investment, especially from Japan, Drucker saw little cause for concern.

“Their investments—especially those made by the Japanese—got tremendous publicity,” Drucker wrote in The New Realities. “But no one noticed—in large part because it contradicted everything that economic theory would consider ‘economically rational’ behavior—that American companies invested during their period considerably more abroad than foreigners invested in the U.S.

Indeed, currently, Chinese investment in U.S. companies totals about $25 billion, while U.S. investment in Chinese companies tops $70 billion.

He also considered worries of trade deficits to be exaggerated, discussing the deficit with Japan in a manner that sounds eerily familiar. “We are so hypnotized by the trade surplus that we do not understand how dependent upon the United States Japan has become,” Drucker wrote in Managing for the Future.  “Now, if you have a $50 billion trade surplus, you may be able to take a small portion home in goods. But what do you do with the rest of the money—dump it in the ocean? … U.S. Treasury bills are almost the only thing they can buy. And here, we have them over a barrel.”

What do you think: How alarmed should Americans be by Chinese ownership of Smithfield Foods?