The Future of Manufacturing in the Rust Belt

15 May 2024
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The Brain Belt, the Battery Belt, The EV Belt, the Next Silicon Valley.

For decades, the fate of the Rust Belt seemed to have been decided: the states where manufacturing once flourished have been left abandoned by the decline of the industry. Nevertheless, recent investments in the region from major technology companies have brought about increased interest in Midwestern manufacturing. 

Throughout the twentieth century, states in the US Midwest, Pennsylvania and West Virginia comprised the heartland of American coal-producing, steel-making and manufacturing.

However, these processes began to be outsourced overseas and to the south of the country where labour costs were cheap and union bosses had less of a foothold. The ensuing decline proved devastating for the places whose local economies were reliant on these industries. 

Populations plummeted as cities such as Cleveland, Detroit, Buffalo and Pittsburgh saw population decreases of up to 46% between 1970 and 2006. Concurrently, unemployment skyrocketed with Michigan’s unemployment rate reaching highs of 15.5% in 1982, higher than the national average of 10.8%.

Success in Midwest manufacturing might have been consigned to the history books, however, recent years have seen increased industrial activity in the region and high levels of investment from giants in the technology and manufacturing sectors.

The driving factors behind these investments are multifaceted, ranging from governmental support, increased demand for semiconductors and access to a skilled workforce. 

The Semiconductor Boom

 

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Image: Unsplash

In 2022, Congress passed two key pieces of legislation that offered a major boost to American manufacturing. One of these was the Inflation Reduction Act (IRA) which included a wide range of funding opportunities designed to address inflation and encourage “American innovation and ingenuity to lower consumer costs and drive the global clean energy economy forward”. 

The act has seemingly encouraged increased opportunities for electric vehicle (EV) production and the development of an “EV ecosystem” in the industrial Midwest. In 2022, General Motors announced plans to invest over $7 billion in Flint, Michigan’s manufacturing sites including Flint Assembly and Flint Metal Centre. In Ohio, LG and Honda have established a joint venture company, producing lithium-ion batteries to power Honda and Acura EV models, promising “$3.5 billion in investments and 2,200 jobs”.

Parallel to this, the past five years have seen a soaring demand for advanced semiconductors. This can be attributed both to manufacturing disruption caused by the COVID pandemic as well as advancements in technology. According to the Semiconductor Industry Association (SIA), “[by] providing the “building blocks” of the microelectronic revolution, semiconductor technology fuels development and productivity in crucial industrial sectors, including consumer electronics.”

As the microelectronic revolution elapsed, the need for semiconductors has grown increasingly urgent. There has been a global effort to scale up production processes with governments around the world introducing “Chips Acts” to account for the increased demand.

2022 also saw the CHIPS and Science Act passed into law, seeking to “provide needed semiconductor research investments and manufacturing incentives and reinforce America’s economy, national security, and supply chains”.

Supported by the CHIPS Act, tech giant Intel announced an investment of over $20 billion to construct two new “leading-edge” chip factories in Licking County, Ohio. This investment is the largest private investment in the history of the state and is projected to create “3,000 intel jobs, 7,000 construction jobs” as well as “support tens of thousands of additional local long-term jobs across a broad ecosystem of suppliers and partners.”

 

A Midwest on the Rise

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The Intel investment is the jewel in the crown of One Columbus, an economic development agency in Columbus, Ohio looking to attract businesses to the region. As well as Intel, in 2019 Google announced its plans to build a $600 million data centre in New Albany, spelling a surge of employment opportunities. 

These investments are a microcosm of wider investment across the Midwest. Tesla has invested in solar manufacturing facilities in Illinois, and Uber has developed its autonomous driving programme in Pennsylvania.

Undoubtedly, the benefits offered by these investments offer vital opportunities to reverse the decline that has come to define the region. But what appeal does the region hold for companies looking to manufacture there? 

The factors that led to the Rust Belt’s historical dominance in manufacturing are still relevant in today’s cultural landscape. Proximity to the US capital Washington DC and the Great Lakes gives the area a geographic advantage. The Rust Belt states are also home to a wide variety of significant institutions including the Chicago Stock Exchange, research facility and healthcare provider the Cleveland Clinic and world-class universities including Carnegie Mellon and the Ivy League Cornell University. 

The availability of skilled workers is also a major draw. One Columbus outlines the initiatives available to potential employers concerning training and education, including incumbent worker training, funding to help offset entry-level training and apprenticeships. 

Columbus has seen an increase in its graduate population over the past few decades. In 1970 around 7% of adults in the Columbus area had completed four years of college degrees or higher. This figure rose to 26% in 2019. According to One Columbus, “of those moving to the Region, 42% are college graduates.”

In its announcement on the opening of the New Albany data centre, Google cites the city’s “combination of energy infrastructure, developable land, and available workforce” as contributing factors in its decision to build the data centre there.

The American Manufacturing Race

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Image: Unsplash

While all this seems promising, sceptics may be reluctant to feel optimistic about the future of the Rust Belt. As John C. Austin and Mark Muro point out, “[t]echnology-based economic development remains a challenging pathway for any region, let alone one with a tough history of deindustrialization and brain drain. There are no guarantees for anyone.”

Moreover, it is difficult to discuss manufacturing activity in the Rust Belt without addressing increased competition from the southern states. Even with the positive strides the industrial Midwest has made over the past few decades, the numbers show that the southern states are achieving more on a larger scale.

According to data released by the Bureau of Labour Statistics (BLS), between January 2021 and May 2023, there were 86,000 new manufacturing jobs in Texas and 37,000 in Florida. Furthermore, over the past decade, Texas has experienced huge population growth, seeing a 15.1% increase between 2012 and 2022, over double the national average of 6.2% and almost 10 times higher than Ohio’s population increase of 1.8%. Parallel to this, Texas has also had a 23.5% increase in jobs over the same period. 

In the American manufacturing race, Texas is the clear frontrunner. 

Between January 2021 and May 2023, Arizona and Georgia experienced 10% and 7.5% increases in manufacturing jobs respectively. Georgia offers a range of advantages to manufacturers including its “business-friendly” legislation, a vast workforce of around 289,000 production workers and certified site program which “identifies industrial sites that have undergone due diligence and are ready for fast-track construction projects.” 

 

What’s Next for Midwest Manufacturing?

 

The future of the Rust Belt remains uncertain. While the Midwest has won major projects that will see significant investment in the area, the region must compete with the South’s fast-growing labour force, job opportunities and “right-to-work” legislation. The success of investments from Google, Intel and General Motors could spell a revitalisation for the Rust Belt, however, its emergence as a leader of manufacturing over the southern states seems unlikely. 

Nevertheless, with large-scale investments, an increasingly well-trained workforce and its place in the lucrative semiconductor sector, it’s easy to be optimistic about the future of the industrial Midwest. Maybe the rust can be polished off after all.

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