The President of the United States took to Twitter last month to continue his feud with Jeffrey P. Bezos, the world’s richest person and the founder of a technology conglomerate with global reach. Such a conflict is a classic example of an unstoppable force meeting an immovable object, and is not entirely unlike past situations we have seen over the last century: “trust-buster” President Theodore Roosevelt took on tycoon J. Pierpont Morgan in 1902, for example. To understand the ramifications of today’s clash, we need to first consider the fundamentals of the situation without a particular bias or partisan lens.
President Donald J. Trump is a billionaire real estate mogul who has been no stranger to social elites and media attention. He was elected following a campaign that included a focus on renegotiating “bad deals” (impacting government finances) and bringing jobs to an economy that had left many U.S. working class individuals behind. As a person, he pays close attention to media praise and criticism. As a Republican, he pays particular attention to “left-leaning” outlets who produce unfavorable stories about him.
Bezos is the founder, chairman, and CEO of Amazon (AMZN), the world’s largest online shopping retailer and a growing supplier of cloud-based computing services. His company has grown rapidly and, while employing over 500,000 people globally, has put pressure on companies that employ millions of workers, replaced human jobs with technological advancements (and continues to seek new advancements), legally bypassed taxes, and is among the many beneficiaries of a financially inadequate U.S. Postal Service (USPS), a federal government agency. He has also owned The Washington Post (a media outlet Trump has accused of bias) since 2013 and, although considered to be a Libertarian, his political donations have gone mostly to Democratic candidates and related causes; simultaneously, his company’s total donations to the Clinton campaign were reportedly over 100x the amount they donated to the Trump campaign.
Now that we know the players, what exactly is the game?
Trump views Bezos as a worthy adversary who controls a company that has financially benefited from the U.S. government’s “bad deals” and whose technological prowess has displaced jobs, while also controlling a publication that has been known to publish unfavorable stories about the President (although favorable ones are published, too). These days, that is a recipe for heightened scrutiny, which can be directly aimed at AMZN or where the company conducts its business.
So where do we go from here? For Amazon, we must consider the prospects of antitrust considerations, new regulations, and increased expenses related to taxes and shipping. For consumers, we must accept the idea that Prime membership fees and prices of goods and services will likely rise.
On the antitrust front, Amazon is an all-encompassing business, but it is not by definition a monopoly. Amazon is just a large player in a highly competitive retail market. While it captures nearly 44 cents on every dollar (43.5 percent) spent in the $200 billion e-commerce sector, according to Recode, plenty of competitors compete for the remaining 56 cents. Also, only about 10 percent of total U.S. retail sales are generated online, leaving plenty of business for traditional brick and mortar locations. Despite heavy competition from Amazon, retailers like Wal-Mart and Home Depot continue to be formidable for various reasons.
In terms of taxation, the government continues to wrestle with how online retailers should recognize taxes. In an interview with FOX Business back in October 2017, NYU Stern professor Scott Galloway noted how Amazon paid $1.4 billion in corporate taxes since the Great Recession, whereas Wal-Mart paid $64 billion. In terms of state taxes, Amazon has improved its collection for its own first party products, which has increased its tax expense across 45 states, but there has been a legislative push for appropriate recognition of state taxes for online sales conducted by third party sellers who utilize the retailer’s platform; you can follow this in the ongoing South Dakota v. Wayfair, Inc. case that has reached the Supreme Court. These sales were sizable at around $313 billion last year, or approximately two-thirds of the company’s gross merchandise volume. By leveraging its online presence, Amazon has been able to take advantage of existing laws and pay/collect less in taxes, thereby allowing it to sell products at typically more competitive prices. This has been particularly detrimental for businesses that had “physical” presences in the United States, as opposed to online ones, and thus had to pay full taxes.
As for its relationship with the USPS: Amazon financially benefits from undisclosed, volume-based subsidies from the agency; these subsidies are not directly funded by taxpayers, but they are subsidized to the tune of $18 billion according to analysis conducted by economist Robert Shapiro. Additional reports indicate that the agency has incurred $65 billion of cumulative losses since the Great Recession and has failed to pay out $38 billion in required health benefits for its retirees, signals of an increasingly distressed financial position. An Executive Order signed by President Trump on April 13, which called for an evaluation of the postal service, as well as other proposed pieces of legislation, raise the likelihood that AMZN, which utilizes USPS services for over half of its “last mile” shipments, may be subject to higher shipping rates.
With increased taxes and shipping costs, Amazon would undoubtedly experience tighter profitability margins and would likely seek to raise prices. However, this will in no way be crippling as the company has the scale to negotiate better terms with other shipping providers and the technological capabilities to continue seeking cost-cutting innovations, such as fully-automated inventory management and delivery services.
At the end of the day, what we should not do is blow all of this out of proportion: Amazon is not going anywhere, no matter how much Trump’s tweets tend to create mass hysteria. Feel free to turn on your 80’s playlist on Prime Music, opt for next-day shipping on that paleo diet book you so desperately need, and ask your Alexa if everything will be OK; I can assure you the answer will be yes.