No modern president has utilized social media and the cause of populism as deftly as Donald Trump. So when he turned his attention to Amazon, it not only became headline news but also may have directly impacted the company’s stock price. So let’s dissect this tweet that came on March 29th from President Donald Trump:
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
— Donald J. Trump (@realDonaldTrump) March 29, 2018
This tweet seems to be in reaction to reports that Trump wants to “come after” Amazon. And certainly, he has been critical of the company and Amazon’s founder and CEO Jeff Bezos, who by spectacular coincidence, also happens to be the owner of the Washington Post, another frequent Trump target.
As we analyze the statement, it does come with some kernels of truth among a lot of hyperbole:
- It’s unclear as to whether Amazon causes tremendous loss to the U.S. because of its relationship with the Post Office. While it is true that the Post Office loses money, that is due to a variety of reasons, from the rapid decline of first class mail and the subsidy of post offices in many communities where it doesn’t make economic sense. Parcel services has quadrupled in the last four years and that volume is critical to maintaining revenue. Amazon, in total, is probably just as beneficial to the USPS but certainly drives a hard bargain with all of its carrier partners.
- Amazon pays little or no sales tax to state and local governments? Today, in fact, Amazon does. Amazon collects taxes in all states that currently charge sales tax. BUT (the President does love his all caps), it is absolutely true that Amazon’s historic growth came with the great advantage of not collecting sales tax in most states as it was first starting out. Ultimately, as their business model evolved, and Amazon has put multiple distribution centers in almost every state (companies must collect sales tax in markets where maintaining physical operations), their tax advantage has been muted but their momentum continues unabated. A small but not insignificant loophole—suppliers on the Amazon Marketplace do not collect sales tax. And of course, no e-commerce retailer pays any local taxes. There have been several bi-partisan efforts in Congress to force ecommerce players to collect sales tax (or a national e-commerce tax) that haven’t gone anywhere.
- Is Amazon putting several thousands of retailers out of business? Sort of. 2017 was a record year for store closures in the U.S. with nearly 8,000 chain stores closing and only 3,000 opening. And 2018 has also started off brutally with more high-profile bankruptcies. Many blame the rise of e-commerce and several point to Amazon in particular. It is the nature of capitalism that better or more efficient business models win out over weaker ones. Walmart was the disruptor twenty years ago. Now, it’s Amazon. Our world may not like it but it’s capitalism at work. Which is something that the President would seem to understand.
So besides making a few headlines, what does it all mean? Likely, nothing. Amazon is a ruthless competitor that is clearly focused on long term dominance and market share versus short term profits. The market (and government, initially) has allowed them to do this. Consumers seem to win and give Amazon a lot of leeway, as they were recently named the number one company by consumers in a recent Harris Poll Reputation Quotient Survey. The Trump Organization? Fifth from the bottom.
