What happened: Trade between the United States and China reached an all-time high in 2022, breaking the previous record in 2018. The annual goods-trade deficit also widened to its most significant point, meaning China imported more into the U.S. than the U.S. exported to China.

The tightrope: Though the world’s two largest economies are more interconnected than ever, they continue to compete for dominance on the political stage. China has moved to aid Russia throughout its invasion of Ukraine and accelerated its push to take Taiwan. Meanwhile, the U.S. pledged full support to both Ukraine and Taiwan and has been arming both countries. Since the supposed spy balloon, House Republicans have proposed 18 bills to weaken China’s economic status.

Don’t forget the chips: The Biden administration’s move to cut China off from semiconductors and vital chip technology that the country needs to equip its military has especially caused tensions to rise.

What happens next? Washington is encouraging Western companies to invest in “trusted trading partners” like India to lessen U.S. reliance on China. Tech-giant Apple, infamous for doing almost all manufacturing in China, is now accelerating its plan to move out of China to countries like India, Vietnam, and Taiwan. But hundreds of U.S. businesses are still pushing to remove Trump-era tariffs on Chinese products.