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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 3, 2013 at 10:40 AM

China goes shopping: Smithfield is only the start

A Smithfield ham in a grocery store display case (L.M. Otero / The Associated Press, 2011)

A Smithfield ham in a grocery store display case (L.M. Otero / The Associated Press, 2011)

The $4.7 billion bid for Smithfield Foods by China’s Shuanghui International might seems like a replay of Japanese acquisitions in the 1980s. After all, those dollars in the trade deficit have to come back some way. Japan’s ascension was abruptly cut short and it has never recovered. China’s situation, however is fundamentally different. As an encyclopedic piece in Sunday’s New York Times illustrated, China’s rise is driven by state capitalism and a billion savers with no options to invest elsewhere:

By buying companies, exploiting natural resources, building infrastructure and giving loans all over the world, China is pursuing a soft but unstoppable form of economic domination. Beijing’s essentially unlimited financial resources allow the country to be a game-changing force in both the developed and developing world, one that threatens to obliterate the competitive edge of Western firms, kill jobs in Europe and America and blunt criticism of human rights abuses in China.

Seattle and Washington business interests might protest that this is more China bashing. After all, China is Washington’s largest export customer, buying not just airplanes but also agricultural products and timber. But most of America is in a different situation. The Economic Policy Institute estimates that at least 2.4 million U.S. jobs were lost between 2001 and 2008 as a direct result of China entering the World Trade Organization (yet playing by its own rules). We have a China conundrum.

Interestingly, that’s the title of a new post this morning by Clyde Prestowitz, the former Reagan administration trade negotiator who is my go-to expert on the subject. He examines several compelling works, concluding “there may be more than a mere military threat, that, indeed, there may be a system threat. Moreover, the prevailing economic policies of America, Europe, Japan, and others may actually be feeding both the military and the system threat.” It’s a must-read and illuminates a quandary that faces Washington, too, whether we want it or not.

One footnote: As you might expect, Wall Street is getting in on the state-owned action. Goldman Sachs is one of the playerz with a piece of the action in the Smithfield deal. And another: Remember when we were promised that Iraq oil would pay for our war there? As it turns out, China is the biggest winner from renewed Iraqi production.

And Don’t Miss: We’re building giant houses again | The Atlantic

Today’s Econ Haiku:

Car sales have plateaued

Habits changed, wages are low

We’re not all big wheels

 

 

 

Comments | More in China economy and business

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