The European Union (EU) has said its current trade and investment relationship with China is no longer sustainable, as officials consider tougher steps to respond to widening economic imbalances.

The European Commission held initial discussions on Friday over how to address intensifying competition from China, including a wave of low-cost exports that has strained European industries, as well as China’s increasing preference for domestic goods over imports.

While stressing that “China is a critical partner,” the commission said engagement will continue but added that the current structure of the relationship is increasingly untenable.

The talks reflect an effort to recalibrate ties while balancing the risk of retaliation, given Europe’s reliance on access to the Chinese market. Officials said economic and security considerations are becoming more intertwined and will require a stronger, more unified approach, with further debate expected at upcoming G7 and EU leadership summits.

Member states remain divided. Germany has urged caution to avoid harming exports to China, while a group including France, Italy, the Netherlands, Spain, and Lithuania has pushed for a new cross-sector trade defense instrument. Beijing has warned that any new EU restrictions could prompt countermeasures.