China subsidises, undervalues its currency, forces tech transfer. Isn't "free trade" with China just naïve?

The suspicion is right: China does not compete like an ordinary trading partner. Its goods are cheap not only because its firms are good, but because the state has bent every cost down. Banks lend below market rates, the currency has stayed held down for decades, the household-registration system suppresses wages, provinces compete to hand out near-free land and power to factories, and direct subsidies sit on top of all of it. China spends around 5% of its national income a year on industrial policy, roughly ten times what the United States or Japan spend. Market access into China came at a price too, since for decades a foreign firm could sell there only by taking a local partner and handing over its technology, which built China’s own champions and, in time, its rivals.

That spending buys factories far larger than China itself can use. In steel, solar panels, batteries, and cars, Chinese output runs to several times home demand. China now makes more than twice as many cars as it can sell at home, across a hundred-odd plants, so even loss-making firms keep producing and sell the surplus abroad below cost. This is not a normal market at work. Left unchecked, China’s strategy of flooding the world with goods priced below cost will drive competitors out of their own home markets.

Tools to defend against that strategy exist, and they are perfectly liberal: an extra duty on the specific product shown, on concrete evidence, to be dumped below cost, applied for a limited time. India already runs about a seventh of the world’s anti-dumping cases on a fortieth of its trade, so whatever India’s China problem is, naivety is not it.

That heavy hand cuts both ways, though. An instrument reached for so readily slides from answering real dumping into sheltering whoever lobbies hardest, and India is not obviously good at telling the two apart. When the government rolled back the quality orders shielding India’s fibre makers, those same firms promptly sought anti-dumping duties on imported yarn instead. Discipline, meaning proven dumping, one product, a fixed end date, marks the difference between a defence and protectionism by another name.

The deeper error is to slide from that defence into walling out China altogether. Blanket protection raises prices for Indian consumers, and the industry built behind it collapses the moment Chinese prices fall further. India’s own steel mills, sheltered by high duties, saw their margins evaporate when China’s export prices dropped, and Western solar factories shut the instant Chinese panels turned cheaper still. One country’s tariffs cannot fix a glut the whole world faces.

Broad protection also mistakes cheapness for menace. A cheap Chinese solar panel or battery is, for India, less a threat than a gift. Indian factories depend on these commoditised inputs, and India’s shift to clean power depends on them too. Taxing them at the border would raise costs for every firm downstream. India could not win a subsidy war even if it tried: its flagship scheme runs to about 0.15% of GDP against China’s five, so out-spending Beijing is not feasible.

Treating China as an ordinary trading partner would be naive. So is the belief that a wall can cure a worldwide glut. The disciplined course runs narrow: strike at dumping where it is genuinely proven, guard the few goods that are truly strategic, and stay open to the rest, above all the cheap inputs that make Indian industry more competitive.