The Group of Seven (G-7) industrial nations this week pledged an ambitious target to diversify away from China, adding momentum to the European Union’s own push to counter a growing trade imbalance with the world’s biggest export engine.

The 27 EU capitals unanimously agree on the economic threat posed by China’s trade policy if left unchecked. At a meeting on June 18 in Brussels, the bloc’s leaders are expected to discuss how to handle upcoming trade talks with Beijing and explore possible responses – including new trade tools.

The EU is worried on multiple fronts: from a trade deficit with China that now exceeds €1 billion (S$1.48 billion) a day fuelled partly by state-subsidised products, to Beijing’s stranglehold on critical minerals and chips. Fears are growing that domestic European industries can not withstand the onslaught much longer.

The EU’s chief trade negotiator, Maros Sefcovic, said in June that Europe’s trade relationship with China was “simply not sustainable” and that “diversification requires a dedicated instrument”. French President Emmanuel Macron warned that the EU may take “strong measures”, including potential tariffs, if Beijing fails to address the trade imbalance.

Member states also agree on the need to diversify their supply chains away from China in critical areas, but several capitals have privately noted that that process will take years and the bloc needs to be realistic in its approach, people familiar with the deliberations said.

Bloomberg reported earlier that the EU was seeking to temporarily lift sanctions on a Chinese chipmaker after the auto industry warned it would otherwise face sh...