Billionaires were minted, and ASX shareholders filled their pockets as Australia rode the China wave.
China's insatiable appetite for Australia's raw materials in the 2000s fuelled an economic boom, giving rise to companies like Fortescue Ltd (ASX: FMG) and greatly boosting the fortunes of mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).
China's demand for the iron ore needed to build its cities and supply its factories saw a vast patch of red dirt in Western Australia's remote north-west become widely known as the 'engine room of the country's economy'.
It wasn't just resource companies that benefitted from closer trade links with China.
China's rapidly growing consumer class opened new markets and opportunities for food and agriculture businesses, such as milk products producer A2 Milk Company Ltd (ASX: A2M) and wine producer Treasury Wine Estates Ltd (ASX: TWE).
By mid-2020, the A2 Milk share price gained more than 3,000% in about 5 years.
And the Treasury Wine share price had quadrupled over a similar time frame.
Then things changed.
Image source: Getty Images
Costly disputes
Australia's relationship with its biggest trading partner started to turn sour. By the end of 2020, as accusations and suspicions flew back and forth, China had slapped tariffs on a range of Australian goods, including barley, beef, wine, and cotton.
The Treasury Wine share price tumbled, going from about $17.60 at the start of 2020 to finish the year at around $9 a share, shedding almost half its value.
And, after hitting highs of around $20 in mid-2020, the A2 Milk share price was down about 75% a year later.
Then things started to change once more.
Friends again?
By the end of 2023, China removed tariffs on Australia's key exports, including barley, beef, wine, and cotton.
According to Australia's Department of Foreign Affairs and Trade, two-way trade with China increased by 2.6 percent in FY24.
Goods and services that Australia exported to China totalled $212.7 billion for that same year
And while A2 Milk and Treasury Wine shareholders are yet to see their stock rise to the highs they were achieving a few years ago, Australia's relationship with China continues to improve.
Lessons to be learned
Tariffs have a real impact on markets, and we can learn much from the ebbs and flows of Australia's trade relationship with China.
Some may see an opportunity for Australian companies with exposure to the vast Chinese market as relations between our two countries continue to mend.
Indeed, some will see the Trump Administration's trade disputes with China and retaliatory tariffs imposed by both nations greatly enhancing that opportunity for Australian companies as openings to increase market share appear.
Australia's free trade agreement with China, enacted in 2015, remains in place and continues to offer benefits for Australian producers and exporters. It allows them to sell goods to Chinese consumers at competitive prices.
As such, Australian companies with a presence in the Chinese market, such as Treasury Wine and A2 Milk, are well-placed to capitalise as US competitors face additional cost challenges resulting from tariffs and diplomatic tensions.
Of course, the potential losses for Australian companies that also export to the United States and may, therefore, face the wrath of Trump's tariffs imposed on Australian goods would have to be offset by any gains enjoyed in China.
That said, I think it's time to examine Australian companies with exposure to the Chinese market, such as A2 Milk and Treasury Wine, more closely.
