With the expansion of worldwide free trade agreements in the 1960s, it became far cheaper to produce heavy industrial goods such as steel in third world countries and import them into the United States. As a result, the economy of rust belt areas was decimated, as one factory after another was driven out of business and closed down.
The areas are so called because of the unused, rusting machinery left over from the industrial production days. The term Rust belt is a neologism created by analogy to Grain belt and Bible belt.