The untapped trade potential of South Asia, China, and the Middle East

South Asia is home to more than two billion people, nearly a quarter of the world’s population. When combined with China’s 1.4 billion, this economic corridor includes almost 43 percent of humanity. Yet, trade between these neighbors remains only a fraction of what it could be. This gap is not merely an economic puzzle; it is one of the greatest missed opportunities of recent history.

The widely accepted gravity model of trade shows that countries trade in proportion to their economic size and inversely to the distance between them. By this measure, South Asia and China— geographically close and economically powerful— should be among the world’s most integrated trade blocs. Instead, political tensions, protectionism, and logistical challenges have stifled that potential. Consider India and China: their combined economies dwarf most others, with India’s nominal GDP near $4 trillion and China’s at $18.5 trillion in 2025. Yet, their two-way trade remains under $140 billion annually. Moreover, India faces a significant trade deficit with China, importing substantially more than it exports. Experts estimate this trade could easily be two and a half times higher.

What makes the gap between potential and reality even more striking are the deep historical ties between the region’s peoples. For centuries, monks, scholars, and traders traveled the Himalayan passes, exchanging goods, ideas, and culture. Indian and Chinese civilizations profoundly influenced each other in language, religion, and daily life. Indian artisans were inspired by Chinese motifs, while scholars like Xuanzang undertook perilous journeys to Indian monasteries in the seventh century to transmit Indian Buddhist doctrines to China. These early exchanges laid the foundation for millennia of cultural interdependence. Goods traded included silk, sandalwood, spices, precious stones, and ceramics.

As Amitav Ghosh explores in his book Smoke and Ashes, these exchanges extended far beyond grand historical narratives. Chinese influences have been embedded in everyday Indian life through language and material culture. Words like ‘cha’ for tea in Bengali and Hindi derive from Chinese origins, while porcelain cups, lacquerware trays, and even early sewing machines reflect Cantonese innovations that shaped Indian households.

However, colonial disruptions and prevailing historical accounts fostered a mental disconnect, rendering these mutual cultural contributions invisible in the public consciousness. After independence, political rivalries and nationalistic policies prioritized self-sufficiency over regional interdependence, further fragmenting economic cooperation.

PM Modi’s visit to China could set the stage for gradually recalibrating India’s foreign policy to hedge against US unpredictability.

Javed Hassan

A similar story unfolds between India and Pakistan. Despite shared cultural roots and historic commercial ties, official trade remains dismally low— around $0.5 billion as of early 2025— a steep decline from $2.4 billion just a few years earlier. Informal trade is estimated to be significantly higher but lacks transparency and scale. The result? South Asia now represents roughly 5 percent of global GDP but accounts for less than 4 percent of global exports. This underperformance is stark for a region that hosts a quarter of the world’s population.

South Asia must aspire once again to be the bustling crossroads of commerce. Over 4,500 years ago, the Indus Valley Civilization thrived on trade with Mesopotamia. The Silk Road connected the region not only to East Asia but also to Central Asia, the Middle East, and the wider Indian Ocean network.

Today, the stakes are high. Greater regional economic integration could provide much-needed resilience amid global uncertainties. The recent trade policies of the Trump administration underscored the dangers of over-reliance on distant and unpredictable powers. Strengthening intra-regional trade and supply chains would reduce this vulnerability.

China’s Belt and Road Initiative and the China-Pakistan Economic Corridor offer glimpses of what deeper connectivity could deliver— linking South Asia with China and the Middle East, a region whose economy exceeds $1 trillion and holds enormous strategic importance. Imagine a trading bloc that includes South Asia, China, and key Middle Eastern markets. This bloc would encompass more than 3.6 billion people and command a combined GDP exceeding $26 trillion, rivaling any economic integration project in history.

For this vision to materialize, political will that transcends mistrust and historical baggage is required. It demands a shift from suspicion to pragmatic cooperation. Prime Minister Narendra Modi’s visit to China to attend the Shanghai Cooperation Organization (SCO) summit in Tianjin, his first visit to China in seven years following the 2018 visit and the 2020 Galwan Valley clash that strained bilateral ties, is a significant step toward normalizing relations. This visit, following Chinese Foreign Minister Wang Yi’s recent trip to New Delhi, could set the stage for gradually recalibrating India’s foreign policy to hedge against US unpredictability while strengthening ties with China.

The clock of history is ticking. South Asia, China, and the Middle East stand poised on the precipice of an economic transformation that could reshape global trade and security. It is time to turn the page on missed opportunities and write a new chapter, one defined by renewed commitment to integration and shared prosperity.

- Javed Hassan has worked in both the profit and non-profit sectors in London, Hong Kong, and Karachi. He posts at @javedhassan