Corporate China | US halts trade war with Smithfield sale approval

The deal isn't done just yet, as Smithfield shareholders still need to approve it. Such approval seems likely based on the 31 per cent premium that Shuanghui offered over Smithfield's share price when the deal was first announced. More recently, another group led by hedge fund investor Starboard LP has said it is trying to assemble an even higher bid, which could potentially derail the Shuanghui offer. I've seen similar developments before, and based on past experience would say the Starboard group is unlikely to mount a successful bid due to the advanced stage of the Shuanghui deal.

By approving the deal, the Obama administration is showing that it will weigh each case individually in its trade relations with China, aiming to minimize unrelated political considerations in its decisions. The US could have easily vetoed the deal as a retaliatory move, after China announced anti-dumping tariffs earlier this year on US-made polysilicon, the main ingredient used in making solar panels. Many observers believe Beijing's move was mostly retaliatory, in response to Washington's earlier levying of similar anti-dumping tariffs on Chinese-made solar panels. So more broadly speaking, the US approval of this deal seems to show that Washington doesn't want to fight tit-for-tat trade wars with China and is most interested in promoting the free flow of goods and services across international borders.

Assuming the deal closes soon, which seems likely, the next question will become: What's ahead for Smithfield under Shuanghui's management? My guess is that Shuanghui will probably move very carefully at first, and will make few if any changes at Smithfield to avoid any controversy. The only changes we're likely to see initially are increased imports of Smithfield products to China, and perhaps some technology transfers from Smithfield to Shuanghui's operations in China.