How Nathula Pass Trade Can Cool India-China Tensions

In the high mountains where India and China meet, long-standing disputes over borders have often led to standoffs and clashes, creating a shadow over relations between these two giant nations. From the 1962 war to more recent face-offs in places like Galwan Valley in 2020, the shared frontier has been a source of mistrust and military buildup. Yet, amid these challenges, a quieter path to easing strains has emerged: cross-border trade.

Specifically, reopening trade routes like the Nathula Pass in Sikkim and exploring similar options in Arunachal Pradesh could foster economic ties that bind the two countries closer, reducing the urge for conflict. This approach draws on the idea that when people and businesses exchange goods freely, governments find it harder to sustain hostility. As of September 2025, with fresh agreements to restart trade after a five-year pause, there is renewed hope that commerce can pave the way for peace.

Historically, the Nathula Pass, sitting at over 14,000 feet in Sikkim, has been more than just a mountain trail. It was part of the ancient Silk Road, linking Indian traders with those in Tibet for centuries, carrying tea, spices, and wool. Closed after the 1962 war, it reopened for trade in 2006, symbolizing a thaw in relations. Before the pandemic and border clashes halted it in 2020, the pass handled a modest but growing volume of goods. Indian exports included items like blankets, shoes, and vegetable oil, while imports from China featured goat skins, raw silk, and yak tails. By 2019, the annual trade value reached about 20 million US dollars, though this was far below potential due to restrictions on what could be traded—limited to just 29 items from India and 15 from China. The pass operates seasonally from May to November, avoiding harsh winters, and involves local traders who cross daily with permits.

Fast-forward to 2025, and the landscape is shifting. In August, during a visit by Chinese Foreign Minister Wang Yi, both sides agreed to resume trade at Nathula, along with Shipki La in Himachal Pradesh and Lipulekh in Uttarakhand. This marks the first reopening in five years, driven partly by global pressures like US tariffs under President Trump, which have pushed India and China to seek stability in their bilateral ties.

Local traders in Sikkim have welcomed the move, with one saying, “It brings hope for us,” as it revives livelihoods stalled by the closure. Sikkim’s government is taking bold steps, including infrastructure upgrades like better roads and checkpoints, to boost not just trade but also tourism. In Arunachal Pradesh, while no formal pass like Nathula exists for trade yet, discussions have touched on similar border points, such as near Tawang, where informal exchanges once occurred. Expanding trade here could mirror Nathula’s model, focusing on local goods to build grassroots connections.

Economically, the benefits are clear and multifaceted. For Sikkim, a small state with limited industry, border trade injects direct income into border communities. Before the halt, it employed hundreds of porters, drivers, and merchants, with ripple effects on hotels and shops in Gangtok. Resuming operations is projected to add millions to the local economy annually, especially if the item list expands beyond basics.

On a broader scale, India’s trade deficit with China stands at over 100 billion dollars in 2024, but border trade offers a balanced, small-scale counterpoint where exchanges are more equitable. China gains access to Indian agricultural products, while India imports affordable raw materials. Commentators note that this could stimulate regional development, with Sikkim eyeing global tourism boosts from sites like Doklam and Cho La, now opening for visitors. In Arunachal, where infrastructure lags, trade could fund roads and power, turning remote areas into hubs of activity.

From an analytical standpoint, how does this trade actually defuse tensions? At its core, it creates interdependence. When businesses on both sides rely on each other for profits, any disruption—like a border skirmish—hurts everyone involved. This mutual vulnerability discourages aggressive moves.

For instance, during the 2020 Galwan clash, trade at Nathula was already suspended, but its resumption now signals de-escalation. Experts argue that regular interactions at the pass build personal relationships between traders, humanizing the “other side” and reducing stereotypes that fuel nationalism. In Arunachal, where China claims territory as “South Tibet,” opening trade points could normalize the border, shifting focus from sovereignty disputes to shared gains.

Diving deeper into international relations perspectives, this strategy aligns with liberal theory, which posits that economic ties promote peace by raising the costs of war. Thinkers like Immanuel Kant suggested that commerce creates networks of mutual benefit, making conflict irrational. In the India-China context, neoliberal institutionalism—a branch of liberalism—emphasizes how agreements like the 2006 trade pact create institutions (customs posts, joint committees) that manage disputes through dialogue rather than force. Recent meetings between foreign ministers, discussing border peace alongside trade, exemplify this. Constructivism adds another layer, viewing identities as changeable; through trade, Indians and Chinese might see each other as partners rather than rivals, reshaping narratives of enmity.

Realism, however, offers a cautious counterview. It sees states as power-maximizers, where trade might mask underlying competitions. China’s Belt and Road Initiative, for example, has raised suspicions in India of encirclement. Yet, even realists acknowledge that economic interdependence can deter escalation, as seen in the “hot peace” where rivalry coexists with cooperation. A security dilemma perspective highlights how one side’s military buildup (like China’s new railways near the border) prompts the other to respond, but trade could break this cycle by providing non-military confidence-building measures.

Overlaying a libertarian lens sharpens the analysis. Libertarians, who champion individual freedom and minimal government interference, view state-controlled borders as barriers to voluntary exchange. In this view, tensions between India and China stem not from inherent cultural clashes but from government monopolies on foreign policy and trade. Free border trade at Nathula embodies libertarian ideals: individuals negotiating deals without heavy regulation, fostering peace through self-interest.

As economist Ludwig von Mises argued, trade turns strangers into allies, as each transaction benefits both parties without coercion. Restrictive lists of tradable items—imposed by governments—limit this potential, creating artificial scarcities that breed resentment. A truly libertarian approach would deregulate these, allowing market forces to dictate what crosses the pass, from electronics to textiles, as happened informally in the past. This reduces the role of states in stoking nationalism; instead, locals in Sikkim and Tibet gain autonomy over their economic lives, undermining the rationale for military posturing.

Commentaries from experts reinforce this. In a Crisis Group report, analysts note that warming ties, including trade resumption, reflect a pragmatic reset amid US-China frictions, allowing India to balance competition with cooperation. Al Jazeera highlights how Trump’s tariffs have inadvertently pulled the two closer, potentially undercutting US alliances like the Quad.

A Carnegie Endowment paper traces economic ties from 2005 to 2025, showing how global events like the pandemic and wars accelerated interdependence, with trade volumes rebounding to pre-2020 levels. Indian strategists, like those at the Council on Foreign Relations, warn that while trade helps, unresolved issues like Arunachal’s status require parallel diplomatic efforts. Chinese voices, echoed in state media, frame the reopening as a win-win for stability.

Challenges remain, of course. Smuggling has plagued Nathula, with reports of illegal goods slipping through, eroding trust. Infrastructure on the Indian side lags behind China’s advanced setups, like high-speed rails near the border, which some see as dual-use for military purposes. In Arunachal, geopolitical sensitivities—China’s claims and India’s infrastructure push—could delay trade openings. Libertarians would argue for privatizing border management to efficiency, but practically, both governments must ease visa rules and expand tradable items to realize benefits.

Descriptively, imagine the scene at Nathula: misty mornings where Indian trucks laden with spices meet Chinese ones carrying silk, traders haggling in broken languages amid snow-capped peaks. This daily rhythm contrasts sharply with armored patrols elsewhere on the Line of Actual Control. Extending this to Arunachal could transform disputed valleys into marketplaces, where herders swap yak products for Indian fabrics, weaving economic threads stronger than political divides.

Border trade via Nathula and potential points in Arunachal offers a tangible way to defuse India-China tensions. Backed by liberal theories of peace through commerce, tempered by realist cautions, and energized by libertarian advocacy for free exchange, it promises not just economic growth but a model for coexistence.

As 2025 unfolds with trade resuming, the world watches if this mountain path leads to lasting harmony.

With careful steps—expanding scope, building infrastructure, and fostering trust—the pass could become a bridge, not a barrier, in Asia’s geopolitical landscape.

Views of the author are personal and do not necessarily represent the website’s views.

Dr. Jaimine Vaishnav is a faculty of geopolitics and world economy and other liberal arts subjects, a researcher with publications in SCI and ABDC journals, and an author of 6 books specializing in informal economies, mass media, and street entrepreneurship. With over a decade of experience as an academic and options trader, he is keen on bridging the grassroots business practices with global economic thought. His work emphasizes resilience, innovation, and human action in everyday human life. He can be contacted on jaiminism@hotmail.co.in for further communication.

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