President Donald Trump fired a warning shot at Amazon on Friday, saying the online retail giant should pay much more to have its packages delivered.
While Amazon has grown to become the dominant player in the online marketplace, reaching a market cap of nearly $600 billion, the United States Postal Service lost $5.6 billion last year alone.
“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer?” Trump wrote on Twitter. “Should be charging MUCH MORE!”
Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!
— Donald J. Trump (@realDonaldTrump) December 29, 2017
Part of Amazon’s success has relied on the cheap shipping rate it uses to fulfill its orders.
A Citigroup analysis published in April shows that Amazon is underpaying for the delivery cost.
“It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam,” wrote Josh Sandbulte in the Wall Street Journal on July 13. “Amazon enjoys low rates unavailable to its competitors.”
Sandbulte continued: “My analysis of available data suggests that around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.”
Meanwhile, the U.S. Postal Service suffered a loss of $5.6 billion in 2016.
Amazon’s founder, Jeff Bezos, who also owns The Washington Post, became the richest man in the world in October with an estimated net worth of $90 billion.
Another factor that has contributed to Amazon’s growth is the fact that it enjoyed a competitive advantage by not charging sales tax in many U.S. states for many years.
As recently as 2011, Amazon was only collecting sales tax in five states, said Carl Davis, research director at the Institute on Taxation and Economic Policy (ITEP), a nonprofit research organization focused on tax policy.
This is one of the ways by which the giant online retailer has kept its prices low compared to brick-and-mortar retailers such as Wal-Mart and Best Buy.
“Amazon is doing great damage to tax-paying retailers. Towns, cities, and states throughout the U.S. are being hurt—many jobs being lost!” Trump wrote in a tweet on Aug. 16.
In a 2016 study, economists at Ohio State University found that after the application of the Amazon tax, online shoppers cut their spending on the site by 9.4 percent. This went up to 29.1 percent for items priced at $250 or more.
“If sales tax matters this much at this stage of Amazon’s development … one can only imagine how much this government-granted competitive advantage propelled Amazon’s growth back when it was merely a book retailer,” stated a report by the Institute for Local Self-Reliance, a nonprofit research organization.
However, starting in 2011, Amazon made a significant change in its strategy. The company shifted its focus to ambitiously providing rapid delivery to its customers, requiring it to start building facilities across the country. By the end of 2016, Amazon was collecting sales tax in 29 states, and now it is collecting sales tax in every state.
Emel Akan contributed to this article.