THE REAGAN administration, to its great credit, now raises the possibility of a veto of the international trade bill. Malcolm Baldrige, the secretary of Commerce, correctly described it yesterday as a mixture of good and bad provisions. But the worst are dangerously bad. They would invite retaliation, he said, and "lose us more jobs than they could possibly gain us."

What exactly is wrong with the bill? We've recently offered a few examples in this space. Here's another: the China connection.

The bill would change the law regarding dumping. Dumping means selling exports here at less than the price in their home market, or less than their cost of production. But those costs and prices are not always easy to establish, especially in a communist country. The bill says that for certain non-market ecoomies -- read: China -- there will be a new and unconventional test of dumping. Any goods entering this country from there will be defined as dumped -- and penalized -- if they are sold for less than the average price of similar products being imported from other countries. Not the lowest price, mind you, but the average.

That would make it illegal for China to undersell other imports in this country and, in effect, would close the American market to Chinese products. China exports chiefly the kind of bulk commodities that sell on price alone, and the bill would forbid China to compete on price. Here, as elsewhere, the bill seems to be an attack not solely on unfair trade but on the principle of trade itself.

To shut out Chinese goods would be more than a technical adjustment of the trade regulations. It would be a political statement, and it would have large implications for American foreign policy. Secretary Baldrige is right to warn Congress that there is much in this bill that the administration cannot accept.

What about next year? The defenders of this bill make one argument that deserves careful attention, by the administration and everybody else. With the exchange rate of the American dollar flying high, making American goods fiercely expensive in comparison with all foreign competition, it's only surprising that the legislation now going through Congress is not more protectionist. The subsidies that foreign governments give their exports are mostly pretty minor, measured against the one gigantic subsidy provided by the overvalued dollar. Mr. Baldrige foresees an American merchandise trade deficit of $130 billion this year and perhaps $135 billion next year -- immense figures, far beyond any previous experience. The high exchange rates are the result of high interest rates and big budget deficits in this country. By its easy toleration of them, the Reagan administration is risking a future outburst of protectionism making this year's bll look like the very image of moderation.