President Donald Trump attacked Amazon.com Inc. (AMZN, Financial) again on Twitter on March 29, complaining that the retail giant doesn’t pay state or local taxes, exploits the US Postal Service causing losses to the U.S. and puts thousands of retailers out of business. Well, yes, but how is any of this Amazon’s fault, and why is any of it bad?
Here is what the President tweeted:
"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!"
Let’s break this down point by point. First, Amazon pays little or no taxes to state and local governments. Is this Amazon’s fault? I suppose Amazon could theoretically make voluntary donations to state and local governments if they chose to, but we can’t really blame them for not doing so. Who does that anyway? And it’s not that state and local government can’t pass laws that would force Amazon to pay them taxes. This is possible, and these governments have had since July 1994 when Amazon was founded to pass laws that would apply current tax rates to internet retailers.
While governments are generally slow-moving creatures, a quarter century should be enough time for these governments to figure something out. The fact that they haven’t yet is not the fault of Amazon. Even if you want to say that it is impossible to pass state and local taxes on Amazon for whatever reason – too powerful of a lobby, maintaining competition with other states or municipalities or what have you – if the issue is leveling the playing field so brick and mortar retailers can compete and survive, then all these jurisdictions have to do is eliminate state and local taxes on brick-and-mortar retailers. The fact that they have not done this is no fault of Amazon’s.
Second, Amazon uses the US Postal Service, causing tremendous loss to the US. This is quite an extraordinary statement. It may be true, but that doesn’t make it any less extraordinary. Can anyone think of a private company in any sector in all the world that complains of too much business causing tremendous losses? Whose fault is it that using a service causes that company losses? The user or the company?
It’s the company’s fault of course. It means the company is managing the service inefficiently. FedEx (FDX, Financial), for example, doesn’t complain of Amazon giving it too much business and causing it losses. Neither does United Parcel Service (UPS, Financial). While these firms do acknowledge strains to their infrastructure especially seasonally, they sure don’t complain or shun the business. Perhaps if these two private shipping firms got most of the Amazon shipping business, Trump would be complaining that private competitors to the US Postal Service were causing tremendous losses to the US as well by taking all the Amazon business. The fact is, the USPS is run poorly and that is not Amazon’s fault.
As for putting thousands of retailers out of business, this is the creative destruction of capitalism. Trump is complaining here of the seen and ignoring the unseen. What does this mean? He’s complaining about the companies now out of business and ignoring the savings now in the pockets of American consumers that can now be spent on other American businesses. How many other American businesses would be bankrupt now if not for the extra savings that Americans have because they don’t have to spend as much on retail thanks to Amazon? This is impossible to know, hence the unseen, but that doesn’t make it any less of an economic reality.
Competing with other companies is not a crime and it is not harmful and it is not “concerning” in Trump’s words. Every economic transaction, in fact, is preference to transact with one party over another, and can therefore be seen as hurting the party that was not transacted with. So what? This complaint of putting competitors out of business is the economics version of complaining about the law of gravity.
Disclosure: No positions
