News Analysis: With Europe-Canada Deal Near Collapse, Globalization’s Latest Chapter Is History

News Analysis

LONDON — Even in this moment of fierce reassessment of the merits of free trade, the deal promoting commerce between the European Union and Canada seemed like a safe bet to secure political blessing on both sides of the Atlantic.

So as the agreement appeared dead on Friday — collapsing in the face of unrelenting opposition from Wallonia, the French-speaking portion of Belgium, where dairy cows have run of the land — it underscored the extent to which trade has become politically radioactive around much of the globe.

Liberalized trade has amplified economic growth, but the spoils have been largely monopolized by wealthy and corporate interests. Recriminations over the resulting economic inequalities are now so ferocious that modern history has been altered: The phase of globalization that began with the ending of World War II is essentially over.

In the seven decades since that conflagration, world leaders have forged a series of increasingly large and complex trade deals, pinning hopes for peace and prosperity on the value of turning wartime adversaries into commercial partners.

But if a deal negotiated at the highest level between two large and advanced economies like Canada and Europe can be upended by narrow interest groups — like the dairy industry in a relatively minor participating nation — forget about every other large and complex deal under discussion.

One may presumably close the books on the Trans-Pacific Partnership, the enormous trade and investment pact championed by the Obama administration and encompassing a dozen nations around the Pacific Rim. One may reasonably perform last rites on the Transatlantic Trade and Investment Partnership, the similarly gargantuan deal between the European Union and the United States.

As for anyone still nursing fantastical notions that Europe and Britain will set aside domestic politics in negotiating what may be the most complicated divorce in history, Friday delivered a sobering development.

The British government has insisted that it will find a way to leave the European Union while maintaining access to the European single market — the buyer of almost half of Britain’s exports. But any deal resulting from tortuous negotiations must win the assent of the 27 other members of the European Union. Any one of those countries seeking to protect the concerns of a single affected industry can essentially stop any deal from proceeding.

On Friday, that is precisely what happened when Chrystia Freeland, Canada’s international trade minister, left the talks and went home to Ottawa.

“It is evident to me — evident to Canada — that the European Union is incapable of reaching an agreement,” she told reporters.

Under Belgium’s complicated federal system, Charles Michel, the country’s prime minister, can give his approval to the deal only once all of the country’s regions assent.

The Wallonia region of Belgium is home to 3.5 million of the country’s 11.2 million people. Yet in single-handedly blocking a trade deal produced over seven years between the European Union and Canada, it effectively determined the terms of commerce applying for 500 million Europeans.

The Walloons did not relish the idea of having to compete against imported dairy products from Canada. Britain makes cars, medical devices and sophisticated parts for airplanes. It is a global leader in financial services. Somewhere in the European Union must surely lurk some other Wallonia that will seize the opportunity to slap tariffs on British goods even at the cost of broader economic interests.

That was already apparent to anyone paying attention to European politics. After Friday, London’s ministers will need spirits to maintain delusions of an amicable divorce. (And if those spirits come from the other side of the English Channel, they are likely to cost more.)

There is now “a huge question over whether the common European trade policy can survive,” said Hosuk Lee-Makiyama, the director of the European Center for International Political Economy, a research organization based in Brussels.

It is now beyond argument that liberalized trade between wealthy countries and developing countries exposes vulnerable workers to substantial perils. When cheaper imports arrive from low-wage countries, people making more expensive domestic goods can find themselves looking for new jobs.

When the North American Free Trade Agreement took effect in the mid-1990s, enabling goods to flow across Canada, Mexico and the United States with minimal impediments, factory workers in American industrial communities became vulnerable to job losses as production flowed south. When China entered the World Trade Organization in 2001, gaining the right to export its wares around the globe, factory workers in every industrial nation were rendered vulnerable.

Trade economists will say with justification that the inclusion of China and Mexico in the global trading system promoted economic growth, increased consumer choice, lowered prices on a variety of goods and allowed companies in wealthy countries to export more of their own wares.

Yet if the gains of trade were broad, the pain befalling communities directly in the path of China’s export juggernaut proved intense and poorly cushioned by government policies. A voluminous body of economic literature has in recent years brought home just how intense and damaging the China shock has been in the United States alone.

The distrust left after that shock, and anger over the broader workings of trade, have transformed politics in many major economies. Rage over factory closures in the American heartland propelled the rise of Donald J. Trump. Such sentiments fueled Britain’s vote to leave the European Union. Here is part of the explanation for the growth of right-wing populist parties in France, Germany, Hungary and elsewhere.

Now, even a deal between Europe and Canada looks unachievable.

Trade theory teaches that exchange across borders is ultimately beneficial to both countries. Some groups will win and some will lose, but society as a whole benefits, provided the terms of trade are fair and regulated by legitimate governments operating transparently.

Here is what is most extraordinary about the demise of the Canada-Europe pact: It did not involve wealthy countries and poor countries with different labor and environmental standards. It spanned two of the most affluent, democratic and regulated societies on earth.

If the people in these two regions cannot trust one another to deliver policies that will make the unimpeded exchange of goods and services a desirable deal for both, then the merits of trade are effectively defunct in the political realm.

Most of the resistance to this deal and the larger trans-Atlantic and trans-Pacific agreements has centered not on the elimination of tariffs but on the so-called investment provisions that standardize — or harmonize, in the argot of trade negotiators — applicable rules.

To voters in myriad countries increasingly suspicious of large institutions — those of the European Union and those like the World Trade Organization — this translates as an erosion of sovereignty. All of these negotiations have been accompanied by accusations that they will effectively elevate the interests of multinational corporations above national laws.

But the Europe-Canada deal did not succumb to such grandiose fears. Rather, it was done in by old-school parochial interests trumping larger concerns. The dairy industry in Wallonia was among those interests that prevailed over European trade policy writ large.

Here was unmistakable proof that the politics of the moment were more local than ever.

And here is a moral that applies to more than this story alone.

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