The US and China have agreed the first step of a broader deal to diffuse a trade war between the two economic giants, though key tariffs on energy imports into China remain in place.

The so-called phase one economic agreement between the countries was signed at the White House on Wednesday. It includes a Chinese pledge to accept an additional USD 52.4bn worth of energy imports over the next two years as part of a broader commitment to buy USD 200bn of US goods.

The energy imports cover liquefied natural gas, coal, oil and refined products, though China will continue to maintain a 25% tariff on LNG and a 5% tariff on oil.

“For China to massively increase imports of oil and LNG from the US while tariffs remain in place is going to be challenging,” said Wood Mackenzie vice chair Gavin Thompson in a statement.

“At the same time, the next two years will also see a slower pace of gas demand growth in China, rising domestic production, and the arrival of Russian pipeline gas, creating a more competitive gas market.”

The additional imports are to be measured against a 2017 baseline in which China imported 1.5m tonnes of US LNG worth USD 0.6bn.

Energy exports

China would find it “exceptionally challenging” to raise its US energy imports by the agreed amount, given these peaked in 2017 at USD 9bn, according Commonwealth Bank analyst Vivek Dhar.

The most obvious avenue for growing volumes would be via increased oil imports, Dhar said.

With many new US LNG production facilities searching for a market, any longer-term offtake deals with China would likely hurt Australian producers, he added.

The CBA estimated around 8-10% of Australia’s LNG exports were at risk of substitution as those were sold at a spot or short-term basis.

“These LNG exports, though, can still find a home elsewhere in the Asian basin. We think LNG exports sold under long-term contracts from Australia to China are less likely to be impacted.”

China was unlikely to grow its imports of US coal substantially, given the abundance of competitive supplies regionally, said IHS senior director of global coal analysis, James Stevenson.

The US Energy Information Administration expects US coal exports to fall almost 11% this year to 75m tonnes. Steam coal exports should fall 6% to 33m tonnes due to “less favourable market conditions”.