BRUSSELS—China’s economic pushback against the European Union over Lithuania’s outreach to Taiwan has sparked divisions in the EU and raised fresh doubts about its ability to shield its giant market from Beijing’s pressure.

China in recent weeks has effectively blocked Lithuanian firms from its market and started pressing European and U.S. firms with Lithuanian suppliers to cut those ties or risk being frozen out, according to U.S. and European officials.

The...

BRUSSELS—China’s economic pushback against the European Union over Lithuania’s outreach to Taiwan has sparked divisions in the EU and raised fresh doubts about its ability to shield its giant market from Beijing’s pressure.

China in recent weeks has effectively blocked Lithuanian firms from its market and started pressing European and U.S. firms with Lithuanian suppliers to cut those ties or risk being frozen out, according to U.S. and European officials.

The Chinese pressure came after Taiwan in November opened a representative office under the island’s name in Lithuania’s capital, a move Beijing called an “egregious precedent” and vowed to retaliate. Most Taiwanese offices abroad use the name of Taiwan’s capital, Taipei.

Lithium prices are rising as demand for the key ingredient in electric car batteries grows, amid a broader push to move away from oil and gas. But extraction of the metal is time consuming and potentially harmful to the environment, and plans to produce more have prompted protests. Photo: STR/Getty Images, Oliver Bunic/AFP/Getty Images The Wall Street Journal Interactive Edition

China’s economic measures, which were never officially announced, show Beijing remains able to sidestep growing EU moves to defend its market from China’s economic behavior. The EU holds authority over member states’ trade policy.

Since 2019, the bloc has announced policies aimed at helping its companies compete with Chinese rivals and to gain leverage for European firms in China.

Yet the response from European capitals to China’s pressure on Lithuania has been muted. Some diplomats have been critical of the Baltic country’s decision to challenge Beijing over Taiwan, a politically charged issue for President Xi Jinping. Others have sought to avoid escalating the face-off with China.

U.S. officials have been louder in condemning China’s pressure tactics.

On Tuesday, Lithuanian President Gitanas Nausėda said the government had erred in allowing the Taiwanese office to carry the name of the island.  Last year, Lithuania, a U.S. ally in the North Atlantic Treaty Organization, also became the first country to quit the 17+1 grouping, a forum for political and economic ties between China and a number of, mainly smaller, European countries.

“I think it was not the opening of the Taiwanese office that was a mistake, but the name, which was not coordinated with me,” Mr. Nauseda told a Lithuanian radio station.

“Now we have to deal with the consequences, which are that unconventional measures have started to be taken against Lithuania, and we have to be very active and signal very clearly to the EU that this is an attack, a kind of pressure on one of the EU countries,” he said.

Lithuanian officials have raised the issue at the highest level, including the bloc’s leaders summit in December. On Tuesday evening, European Commission President Ursula von der Leyen discussed the situation with Lithuania’s prime minister. Ms. von der Leyen said in a tweet afterward that she had offered her full support to Lithuania “in addressing current trade irritants with China.”

Beijing regards Taiwan as part of China and has vowed to take control of the democratically self-governing island of 24 million people.

At the start of December, Lithuania stopped being included on the Chinese customs authorities’ country list, effectively preventing its companies from doing business there, officials say. Lithuanian diplomats left China in mid-December after being ordered to hand in their diplomatic papers.

EU efforts to mediate have failed so far. The bloc has warned it could refer Beijing to the World Trade Organization, although any action there is likely to take years.

“Now we start to hear complaints from other member states of blockages of their exports if there are goods of Lithuanian origin in their supply chains,” said the EU’s trade chief, Valdis Dombrovskis in a recent interview. “Clearly, we are aware that WTO challenges take time, so therefore we are looking at what are other ways to address the situation.”

On Monday, U.S. Secretary of State

Antony Blinken discussed China’s steps against Lithuania with counterparts from nine Eastern European countries. The State Department said in late December that U.S. firms with suppliers from Lithuania were starting to be affected by what it called “escalating political pressure and economic coercion” by China.

China’s steps are a reality check for the bloc. Officials had felt confident they were increasing their economic leverage with Beijing.

In October 2020, the Commission launched a screening mechanism for foreign investments. In its first year, 8% of the 265 transactions referred for deeper screening came from China.

The Commission is tightening rules to prevent firms receiving foreign grants, loans, tax credits or other forms of state aid from acquiring European companies or competing with them for certain EU contracts. It is also close to agreeing an international procurement instrument that would allow the bloc to lock out companies from countries that exclude European firms from their government contracts.

The Commission has also proposed an anti-coercion instrument that would allow them to impose tariffs or block exports from countries using economic arm-twisting against the EU.

Yet faced with what officials acknowledge is Chinese coercion, the EU has appeared powerless despite economic links that generate 1 billion euros daily, equivalent to $1.13 billion, in trade and hefty European investment in China.

Lithuanian officials have raised the issue at the highest level, including the bloc’s leaders summit in December.

Yet EU and Lithuanian officials say that some of the bloc’s larger member states, including France and Germany, with deep economic ties to China, have sought to avoid escalating tensions with Beijing. In his first call with President Xi, new German Chancellor Olaf Scholz vowed to pursue deeper economic ties last month.

Lithuanian diplomats say the response from some European capitals has been to treat it as a bilateral problem which requires compromise.

Alicia García-Herrero, senior fellow at European economic think tank Bruegel, warns that if the EU fails now to exert its collective economic weight as one of China’s largest export markets, Beijing could step up pressure.

Ultimately, she said, the EU’s authority over trade policy will erode if it can’t protect its smaller members.

The EU “could at least say that Lithuanian exports are European exports and that any action against Lithuanian exports is action against European exports” said Ms. García-Herrero. “No such thing has been uttered.”

—Daniel Michaels contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com