Written by Sophie Xu & Zach Gietzen (Research Lead), Joshua Kallumkal
“Rust Belt” is a term that refers to regions across the Midwest and Northeast that are described to have experienced historical downwards economic trends, and population decline in their manufacturing. Much of the decline is believed to point to increased foreign imports and manufacturing shifted to the American South that begun in the late 1970s, with theories that suggest that it started in the 1950s due to lack of product and labor competition and slowed productivity and innovation. However, when it was at its peak, the Rust Belt was a global economic giant and held over half of the United States’ manufacturing jobs and 43% of all jobs in the United States in 1950. Although the United States is still considered a manufacturing superpower, as the 4th largest steel producer in 2020, the 2nd largest automaker in 2021 and largest aerospace exporter in 2022, the clear shift from domestic manufacturing to relying on international imports for consumer products has been a key topic in many presidential campaigns and has influenced the American public’s opinion on American manufacturing.
Source: Competition and the Decline of the Rust Belt | Federal Reserve Bank of Minneapolis (minneapolisfed.org)
“Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis”, co-authored by Dr. Simeon Alder, Dr. David Lagakos, and Dr. Lee Ohanian, published in 2014. In both figures, the Rust Belt’s employment shares show declines starting from the 1950s. These figures also suggest that after the 1980s, Rust Belt manufacturers began to innovate, and thus the decline slowed.
This is not an uncommon trend, as many other economically developed countries including England and Scotland, have experienced the same trends over the past several decades that dated back to the Industrial Revolution. However, when people refer to the Rust Belt, they usually refer to the de-industrialization of regions in the United States.
This visualization refers to the differences between employment growth rates for cities after their country’s (France, Germany, Great Britain, Italy, Japan, and the United States) manufacturing peak. Their findings showed that deindustrialization negatively impacted cities that depended on manufacturing, whereas cities with less reliance and higher populations of college-educated workers experienced significant growth. Instead, many of these cities shifted to service-spending as they started to get richer. Although the visualization takes into consideration 1,993 cities, the trends provide insights into the concerns for Rust Belt cities in the United States.
While there are mixed opinions about what states are included in the Rust Belt, and whether it is still relevant, swing states including Michigan, Wisconsin, Pennsylvania, and Ohio are generally accepted as members of this region. Despite debates, historically and currently, members of the Rust Belt are a key deciding factor in the result of presidential elections and have industries that are consistently addressed during candidate campaigns and debates. Voters in these states are under interesting circumstances due to the economic and population declines of the Rust Belt. In fact, many non-college degree voters feel like they have less opportunities, which can be tied to different factors from societal technological innovations such as air conditioning and market-friendly economic policies such as right-to-work laws, to local housing costs and weather. To understand the facts and possible influences on the coming election, the definition and history of the Rust Belt, its impacts on previous election results, key factors, trends, and keys for state economic health will be considered to identify if the Rust Belt has been overblown or not.
What is the Rust Belt?
The Rust Belt is a prominent region in the United States that was once the center for manufacturing. Industries such as automotive and steel are very major in this aspect. The term rust belt refers to the economic decline after many of these industries started to shrink, creating high unemployment and vacant factories. The Rust Belt is comprised of Ohio, Michigan Pennsylvania, and Wisconsin. Over the years, advancements in technology and shifts in political priorities have caused the Rust Belt to lose its place in Manufacturing.
Following World War II post-war economy, the Rust Belt started to decline for a number of reasons significantly. The absence of competition in the labor and production markets was one of the primary causes. Strong labor unions in the Rust Belt regulated wages in sectors such as steel and autos, driving up labor costs relative to other areas. The industries were dominated by a small number of powerful corporations at the same time, which decreased competition and the need for innovation and new technology investment (Alder et al., 2014).
The manufacturing employment share in the Rust Belt drastically decreased by 2000, with most of the fall occurring prior to 1980. Manufacturing jobs in the area were relocated to other parts of the United States, particularly the Sun Belt in the South. This was a particular movement of industrial activity away from the Rust Belt rather than just an instance of general economic downturn (Alder et al., 2014). The Rust Belt's steel and rubber industries adopted new technology later and saw slower productivity development than other industries in the region, which further increased the loss.
The decline in the Rust Belt's percentage of manufacturing and total employment in the United States between 1950 and 2000 is depicted in Figure X. The data demonstrates a consistent decline in both measures: total employment fell from 43% to 27%, and manufacturing employment fell from over 50% to about 33%. This pattern demonstrates the profound changes in the economy that took place, with manufacturing jobs leaving the Rust Belt and contributing to the downturn in the local economy.
Rust Belt industries invested less in research and development (R&D) as a result of the reduced level of competition. For instance, compared to more competitive businesses like the manufacturing of communications equipment and airplanes, R&D spending in important Rust Belt industries like steel and autos throughout the 1970s was much lower. According to Alder et al. (2014), one of the main causes of the region's economic decline was this lack of innovation.
Pennsylvania, The Steel Industry and the Election
As a historic swing state with 19 electoral votes, Pennsylvania can be a critical part of any campaign strategy, therefore it is crucial for a candidate to understand what impacts the state's economy and the people that rely on it. The powerhouse of the Pennsylvania economy has historically been in Pittsburgh’s steel industry which today employs roughly 5.3 thousand people. Source
The majority of lost jobs in this industry over time is the increased use of automation that is especially easy in most of the steel making process. So, it would be a tricky promise to keep for a candidate to say they will bring more jobs to industry. Especially since the difference in steel production year over year has remained relatively similar.
Source: FRED
As displayed by the graph above, the biggest changes in the amount of steel production in recent history have been the 2008 economic crisis and the outbreak of COVID-19. Therefore, although a large amount of steel is produced in other countries, it is not likely that implementing tariffs and attempting to move production back to Pennsylvania will have a noticeable effect especially during one four-year presidency term.
A cause for recent debate has been the implication that this current election would have of fracking and oil production.
Source: FRED
The graph above shows percent change in millions of dollars. Over the past decade, production has gone through periods of influx and decline. However, this sector doesn't produce enough money to largely affect the economy, rather just the few people with access to oil reserves or large corporations that will pay for access to people's land.
Historically, Pennsylvania has been a very blue state but only by a marginal percentage as shown by their swing the 2016 election, likely due to former President Trump’s promises to bring American jobs back. Former President Trump’s win was the first time Pennsylvania swung to the Republican party since the 1980’s. All this to say, with enough support from either candidate, it is entirely possible for the state to go either way.
Wisconsin’s Industries and Trends from 1998-Now
Wisconsin’s location next to the Great Lakes is one of the key reasons why it is considered an influential manufacturing state, and why it is considered part of the Rust Belt. While many mass-produced simpler consumer products are exported globally, Wisconsin has evolved to manufacture advanced machinery, including MRI machines and CAT scanners. Wisconsin has exported $27.4 billion in categories including Agriculture, Construction, and Mining Machinery Manufacturing ($1.9 billion or 6.9% of total exports), and Navigational, Measuring, Electromedical, and Control Instruments Manufacturing ($1.7 billion or 6.2% of total exports). Although the focus will be on products including paper, especially as paper usage has shifted due to global digitalization, Wisconsin remains strong in its manufacturing with its 8,900+ companies, and its growth with foreign exports and has seen growth in other sectors that are in more demand across developed countries.
The figure shows the growth index trends from 2002 to 2022. It is important to note that due to the y-axis’ scaling, some sectors including plastics products have experienced average annual increases of 17.7% and dairy products have experienced average annual increases of 38.9% since 2002, but they are less noticeable due to pharmaceutical & medicine’s abnormal peak in 2021 as a result of the pandemic, which achieved an annual average growth of 80.8%, exporting an annual average of $1.51 billion from 2020 to 2022.
Wisconsin’s Leading Export Industries – Community Economic Development To further breakdown Wisconsin’s exports, it can be grouped by countries, and then through that identifying the leading categories for each country. Canada is the leading exporting partner for Wisconsin, taking up $8.6 billion of exports, which is almost one-third. The figure shows the top countries Wisconsin exports its products to. This includes Canada, which takes a significant percentage of the exports, with Mexico slowly increasing throughout the recent two decades. Other countries include China, Germany, United Kingdom, Australia, and Japan, all of which have stayed under 10% throughout the years.
Wisconsin USMCA State Fact Sheet.pdf (trade.gov) With Canada as the leading country that Wisconsin exports to in 2019, with converted paper products ranking as first. Machinery remains as a top export, and to Canada, and if combined as observed in a previous figure would overtake paper products.
Real Gross Domestic Product: Paper Manufacturing (322) in Wisconsin (WIPAPMANRGSP) | FRED | St. Louis Fed (stlouisfed.org) Diving into paper, the real GDP in paper in Wisconsin has experienced strong annual fluctuations. As seen in this figure, however, the percent changes indicating decline are much stronger than the increases, such that overall, the industry is not improving year after year. Despite the thorough integration of the Internet worldwide, paper has remained a key export for Wisconsin, as paper continues to be used for different functions, from communications to packaging.
In this next figure, however, another story is being observed. The overall number of employees within the paper manufacturing sector has decreased by 15 thousand from 2003. Even during years where there were large percent changes in real GDP, the number of employees only shows stagnation or decline. It is important to note, however, that the year parameters for these figures differ, as the real GDP figure dates from 1997, whereas the employee figure dates to 2003.
However, despite its clear growth in specific export sectors and foreign country partnerships, Wisconsin has experienced its symptoms of Rust Belt deindustrialization, specifically in its employment. Not only has Wisconsin endured a decline in its overall numbers of employees in manufacturing, but it has also experienced a decline in the number of union members, further lessening union power in the state. Lags in passing market-friendly economic policies, lack of competition in the industry and labor have contributed to the economic and population decline. While previously, strong unions have been credited to increasing production costs and higher wages, these unions have lost bargaining power over the years and resulted in a cycle of decreasing employee counts and decreasing union power.
In this Federal Reserve Economic Data figure, the number of employees in the Wisconsin Machinery Manufacturing sector reached 92.6 thousand at its peak in 1998 and has since declined to 68.1 thousand during the present day. It is observed that the number of employees in this sector reacts strongly to significant events, including the normalization of trade with China, the Great Recession and the September 11 attacks. The workforce received a significant blow as a result of recession’s increased production costs, as companies push to cut costs through labor costs. However, these recessions are not fully credited to the loss of employment, as the sharp decline is observed beginning in 2000, and fails to reach its previous record high numbers.
Wisconsin has the largest decline in proportion of all employees who are union members, with 17.8% of all Wisconsin employees in 2000 to 7.9% in 2021, which is below the 2021 national average of 10.3%. This is highly influenced by the legislation that decreased public union power and impacted private union membership, both of which resulted in a decline in union memberships. For the overall manufacturing industry in 1983, the Wisconsin union membership rate was 36.0%, or 197,032 private manufacturing employees, and in 2020, it has reached 12.8%, or 65,571 employees. Considering Wisconsin’s history as a forefront for public sector unions and organized labor but also its tendency to limit union influence, it may take future laws in favor of unions for the union membership to increase and improve the manufacturing job conditions.
Upcoming Election’s Impacts on Supply Chains
The Rust Belt's supply chains will be significantly impacted by the 2024 US election. States like Michigan, Ohio, Pennsylvania, and Wisconsin are included in this region. Although manufacturing has a long history in these states, sectors like steel and automotive have suffered over time due to factors like trade, outsourcing, and automation. The outcome of the election will directly affect trade policy, labor movements, infrastructure investment, and the transition to renewable energy sources.
The effect of tariffs, particularly on steel, is one of the main concerns for the Rust Belt. With the intention of safeguarding American steelworkers, the Trump administration imposed a 25% tariff on imported steel in 2018 under Section 232 of the Trade Expansion Act. This was done to help American steel manufacturers by raising the price of foreign steel. Because of the tariffs, U.S. steel imports had decreased by 15% by 2019, which benefited domestic steel producers. For instance, U.S. steel companies were able to run at a level that is necessary for long-term profitability roughly. Although there were drawbacks as well, this increased competition in the US steel market. Automakers and other industries that depend on steel saw a $400 increase in costs per vehicle as a result of the tariffs. 82% of capacity. Although there were drawbacks as well, this increased competition in the US steel market.
In the Rust Belt, where 12.4% of Michigan's workforce belongs to a union, compared to 10.1% nationally, labor unions play a significant role in society. Changes in labor laws may result from the 2024 election, which would affect these workers. In the event that a Democratic candidate prevails, they are likely to back pro-union legislation such as the Protecting the Right to Organize (PRO) Act, which would grant employees greater freedom to band together and bargain for greater pay Although this might result in higher wages for employees, it might also drive up labor costs for businesses. According to some studies, if the PRO Act is passed, labor costs could increase by 5% to 10%.
Although neither side disputes the need of infrastructure investment, they disagree on the best course of action. The Infrastructure Investment and Jobs Act (IIJA), which was passed by President Biden's administration in 2021, included $550 billion spread over five years to upgrade infrastructure such as roads, bridges, and railroads—all of which are essential for supply chains. Transportation efficiency could be improved by fixing the highways, for which Michigan alone received $1.5 billion in 2023.
Another area in which the Rust Belt will be impacted by the election is the move toward green energy. The Inflation Reduction Act (IRA), which was passed by the Biden administration in 2022, allocated $369 billion for investments in clean energy, including electric cars (EVs). To increase EV production, Michigan-based corporations like Ford and General Motors have already committed billions of dollars. For example, General Motors declared that it will invest $7 billion in 2023 in battery plants and EV production.
Supply chains are significantly impacted by the U.S.-China relationship, particularly in the Rust Belt. Reducing the quantity of goods imported from China, or "decoupling" from the country, has been discussed since 2018. In conclusion, the Rust Belt's supply chains will be significantly impacted by the 2024 election. The outcome of this election and the policies that are implemented will determine the future of transportation and manufacturing in this area, from tariffs to labor laws and green energy.
Conclusion
The Rust Belt remains a relevant topic, not only because of the United States’ influence as a leading manufacturer and exporter but also due to the upcoming election. The Rust Belt’s members include swing states that are targets for running administrations, of which these administrations will pass legislation that will impact the rest of the United States economy for years. These administrations also impact the Rust Belt through international relations and national legislation that can benefit or hinder unions and place more focus on categories in which the Rust Belt may or may not be specialized in. With manufacturing remaining a key step in every product supply chain, it is crucial to understand the history, factors, data, and forecasts of the Rust Belt and their role in the American supply chain.
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