Trump targets Amazon for tearing up Main Street America, but solution is not so simple

UPDATE — 4/13, 10:31 a.m. EDT: An executive order signed by President Trump Thursday may address concerns expressed by the former New York businessman last week about the Post Office’s financial viability. 

Specifically, a White House task force will be assembled to study and make recommendations for reforming USPS consumer prices in order to “prevent a taxpayer-funded bailout.”

While the Post Office is a self-sufficient entity that does not rely on taxpayer funding, a Citigroup analysis conducted last year showed the agency charges customers less for packages than other U.S. delivery services.

 

President Trump fired a cluster of critical tweets about online retail giant Amazon and The Washington Post recently.  Both entities are predominately under the control of CEO Jeff Bezos, who founded and currently owns 17 percent of Amazon’s common shares and privately purchased the Post in 2013.

Trump has spent the past week attacking the two entities, accusing Washington’s preeminent newspaper of acting as a lobbyist for Amazon.

Larry Kudlow, Trump’s new top economic adviser, told Fox News that the president intends to develop a level playing field between online retailers and brick-and-mortar stores, as the president has openly lamented the decay of “Main Street” in small town America.

However, Amazon already collects state sales taxes for products it sells directly, but its third party sellers, who comprise roughly half of the business, are not required to. Trump who doesn’t dabble in electronics or e-commerce and is a supporter of traditional business argues that Amazon doesn’t abide by fair business practices at the expense of the U.S. Postal Service.

The line between e-commerce companies, like Amazon, and brick-and-mortar businesses drives most of the argument.

In 1992, the Supreme Court ruled that only companies with physical stores are required to collect state sales tax. The case will be re-evaluated April 17, as the state of South Dakota has appealed to overturn of the 25-year-old ruling.

Trump continues to accuse Amazon of exploiting the USPS, saying Amazon is “costing the United States Post Office massive amounts of money for being their Delivery Boy,” an odd quip since the post office is in the business of mail deliveries.

Despite Trump’s accusations, former U.S. Postmaster General Patrick Donahoe says “[the] Amazon contract is profitable for the USPS.”

Donahoe broke down the business of USPS into two service points: mail — letters and magazines — which only the government service can deliver, and “competitive products,” that private sector competitors like UPS and FedEx could deliver.

Currently, Amazon utilizes the USPS in the “last-mile” of delivery, the package’s transportation from a fulfillment depot to its final destination, a service the USPS can complete at a competitive price.

Legally, package delivery is to cover operation costs and 5.5 percent of USPS’ fixed costs.  Donahoe notes that if Trump were to raise the price of shipping “competitive products,” the USPS could potentially lose business to UPS and FedEx.

Furthermore, package shipments are covering more than the 5.5 percent allocation and are a significant source of revenue, thanks to e-commerce.

Amazon’s contract with the USPS expires in October 2018, but despite Trump’s attacks, it will likely remain unchanged as the risk of losing business to competitors is too large.

 

[CNBC] [Reuters] [Business Insider] [New York Post] [Photo courtesy Getty Images/CNNMoney]

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