DEFINITION of 'Rust Belt'

The Rust Belt is a colloquial term used to describe the geographic region stretching from New York through the Midwest that was once dominated by steel production and manufacturing. The Rust Belt became an industrial hub due to its proximity to the Great Lakes, canals, and rivers, which allowed companies to gain access to raw materials and ship out finished products. This region received the name Rust Belt in the late 1970s, after a sharp decline in industrial work left many factories abandoned and desolate, causing increased rust from exposure to the elements. It is also referred to as the Manufacturing Belt and the Factory Belt.

BREAKING DOWN 'Rust Belt'

The Rust Belt was home to some of America's most prominent industries, such as steel production and automobile manufacturing. Once recognized as the industrial heartland, the region has experienced a sharp downturn in recent years from the increased cost of domestic labor and the capital intensive nature of manufacturing. Blue collar jobs have increasingly moved overseas, forcing local governments to rethink the type of manufacturing businesses that can succeed in the area. While some cities managed to adopt new technologies others still struggle with rising poverty levels and declining populations. 

Historic Fall of the Rust Belt

Most research suggests the Rust Belt started to falter in the late 1970s, but the decline may have started in the 1950s when the region's dominant industries faced minimal competition. Powerful labor unions in the automotive and steel manufacturing sectors ensured labor competition stayed to a minimum. As a result, many of the established companies had very little incentive to innovate or expand productivity. This came back to haunt the region when the United States opened trade overseas and shifted manufacturing production to the South.

By the 1980s, the Rust Belt faced competitive pressure domestically and overseas and therefore had to ratchet down wages and prices. Operating in a monopolistic fashion for an extended period of time played an instrumental role in the downfall of the Rust Belt. It shows that competitive pressure in productivity and labor markets are important to incentivize firms to innovate. When these incentives are weak, as in the Rust Belt, it can drive resources to more prosperous regions of the country.

From a policy perspective, addressing the specific needs of the Rust Belt states was a political imperative for both parties during the 2016 election. Many believe the national government can find a solution to help this failing region succeed again.

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