Advertisements

Trump’s Protectionism Hurts his Rust Belt Base

Trump’s protectionist policies will limit competition and therefore hurt the industries of the Rust Belt, whose population makes up his base of support.

Advertisements

By James Sweet III | United States

The 2016 Presidential Election was a monumental political upset in modern American politics. Donald J. Trump, the TV star businessman, became the first President-elect to have no prior political experience. The election saw the states of Michigan and Pennsylvania vote for the Republican nominee, the first time since 1992, with Ohio voting for a Republican, the last time being 2004. These three states, part of the geographical region known as the “Rust Belt”, were crucial in delivering victory to the Trump campaign, but with protectionist policies being enacted by the man they helped win, these states may be the reason that Donald Trump loses re-election in 2020.

Many countries have regions that can be labeled as a “Rust Belt”. These regions used to consist heavily of manufacturing, but have seen a sharp decline in manufacturing jobs and loss of factories. The states of Michigan, Pennsylvania, and Ohio, which make up the American Rust Belt, saw this sharp decline begin during the mid-1900s, continuing to today.

According to an economic research paper by Lee E. Ohanian, a consultant for the Federal Reserve Bank of Minneapolis, the decline of the Rust Belt began in 1950, 30 years earlier than commonly believed. By 1980, the Rust Belt’s share of manufacturing jobs fell by 34%, and it’s overall share of the American economy fell by about 28%. In 1950, 33% of the population lived in the Rust Belt, but by 2000, only 25% lived in the Rust Belt.

There are several reasons for the decline of the Rust Belt, like the rise of the Sun Belt, a region spanning several South Eastern states. The Sun Belt offers better environmental and economic conditions for the manufacturing industry. One factor that was crucial in the decline was the lack of competition, something that protectionist policies such as tariffs actively discourage.

According to Ohanian, “there is considerable evidence of oligopolistic behavior as Rust Belt industries successfully lobbied Congress for protection against both competitors and antitrust prosecution.” With no competition to challenge the Rust Belt companies, there was no incentive to continue innovation, as the government-created monopolies ensured that their products would be bought in the region no matter what.

Looking at the above figure, it becomes evident that the manufacturing industry in the Rust Belt slowly stabilized after 1980. This is because the Sun Belt, a region that consists of southern states, began to attract manufacturing jobs. The region implemented right-to-work laws, which encouraged corporations to move down south from the labor union intensive Rust Belt. In a Forbes article written by himself, Adam Millsap states, “two of the largest and most powerful unions in the country were based in the Rust Belt: the United Steelworkers (USW) and the United Auto Workers (UAW). These two unions were able to use the threat of widespread strikes to obtain higher wages, which increased production costs for Rust-Belt firms.”

Ohanian believes that the Rust Belt can bounce back, “but if the Rust Belt is to thrive again, it must be able to compete and succeed in an exceptionally competitive national and world economy, something that the industries fought against for many years.”

So, how does this relate to President Donald J. Trump?

On the campaign trail, President Trump spoke of his campaign promise to return jobs to the Rust Belt and attempt to fight unemployment in the region. To achieve that goal, President Trump enacted a counterproductive policy, levying tariffs on China, Canada, Mexico, the European Union, and Japan. The only nation that didn’t respond to American protectionism with tariffs was Japan. The remaining four nations levied tariffs against the United States, adding up to a total of $165 billion in tariffs levied by and against the United States.

According to Citigroup, “80 percent of ‘red’ states produce goods subject to retaliatory tariffs totaling 10 percent or more of GDP, compared to 10 percent of ‘blue’ states.” The Rust Belt is one of the most affected areas, with 48% of our exports to Canada originating from the Rust Belt.

Bernard Baumohl, chief economist at the Economic Outlook Group, stated, “More workers in the U.S. make products that are made from steel, than make steel itself.” Imports are necessary to the growth of these industries, and if protectionism gets in the way, President Trump may face a hard time getting re-elected in the areas that he is hurting.

The history of the Rust Belt shows that the decline of an industry is not because of unfair competition, but rather the lack of competition altogether. Perhaps our President can recognize that before skyrocketing prices of the intermediate goods essential to the manufacturing industries of the Rust Belt hurt the region and his chances of reelection.


To support 71 Republic, please donate to our Patreon, which you can find here. 

Featured Image Source.

Advertisements

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Advertisements
%d bloggers like this: