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There is little Prez Trump can do to inflict pain on Amazon, Jeff Bezos

The US President's rants actually make it harder to explore the company's vulnerability to antitrust scrutiny

Joe Nocera | Bloomberg 

Why Trump can't hurt Amazon
Illustration by Binay Sinha

Many of President Donald Trump’s tweets can be classified as foolhardy, but his series of recent rants about Inc. were over the top. I will leave to others the implications for democracy when a US president singles out a company that he wants to punish, but from a business point of view, his crusade is nuts. For all of Trump’s huffing and puffing, there is little he can do to inflict pain on Amazon and its chief executive, It’s amazing that he can’t see it.

The president complains that Amazon doesn’t pay taxes. For the most part, that hasn’t been true; between 2007 and 2015, it paid a combined tax rate (for federal, state, local and foreign) of 13 per cent, on par with many big companies. Last year, however, it did not pay any federal taxes. Why? It appears that Amazon was able to take advantage of some provisions in Trump’s pride and joy, the tax cut he signed in December. In addition, while Amazon for years fought efforts to force it to collect state and local sales tax, it has begun doing so, even collecting from its third-party vendors. Besides, there is simply no way Trump can target one company for a different tax treatment than other companies. So much for taxes.

According to the news site Axios, Trump has mused about using antitrust law to whack Amazon. In fact, there are many people who believe that big tech companies like Amazon, and deserve far more antitrust scrutiny than they’ve gotten, and indeed, that antitrust policy needs to better reflect their enormous power. I’m one of them.

But singling out Amazon is no way to go about it. It causes antitrust experts to shrink from the subject because they don’t want to be seen as doing Trump’s dirty work. And it puts the Justice Department’s antitrust division in a terrible spot. Having already sued to stop from buying after Trump complained about the deal, the division’s leaders would look like lackeys if they went after Amazon, too. Indeed, given the current state of antitrust law, which is very forgiving of big companies making big acquisitions, there is nothing for the government to go after Amazon for.

It’s possible, I suppose, that Trump could prevent Amazon from getting government contracts. In 2013, the company successfully brought cloud computing to the Central Intelligence Agency, and it is the current front-runner for a 10-year, multi-billion-dollar cloud computing contract with the Pentagon. Other tech companies are lobbying to get a piece of the contract, and perhaps the Defence Department will conclude that it’s not worth inviting the president’s ire to give it to the company with the most experience and biggest market share. Fear not. Amazon had over $177 billion in revenue last year and is on track to easily top $200 billion in 2018. If it never sees another penny from the government, it will do just fine.

Back in 2012, the Postal Service was in deep trouble. A self-financed agency since the 1980s, it had lost $25 billion over the previous six years, and $6.5 billion in just the first six months of the year. It had three big problems. First, even though it was expected to generate its own revenue, Congress made it hard to do things that could save billions, like closing rural post offices or ending Saturday delivery. Second, Congress imposed a bizarre requirement that it pre-fund retiree health-care premiums to the tune of $5.5 billion a year. And third, fewer and fewer people were sending first-class mail.

The decline in first-class mail continues today. But postal revenue has largely stabilised at around $70 billion, and losses in 2017 were down to $2.7 billion. Why? Because despite the congressional impediments, the Postal Service has done some serious cost cutting. Also, its package delivery business is going gangbusters. This is almost entirely thanks to Amazon, which has started to rely on the Postal Service to get packages to customers’ front doors.

Although the terms of Amazon’s postal contract have never been revealed, it is implausible that the deal costs the post office money, as Trump claims. What’s more, if he thinks Amazon is getting too sweet a deal, he is actually in a position to do something about it. The Postal Service’s overseer, its Board of Governors, is supposed to comprise 11 people. It currently has two.

Trump’s real motivation is doubtless to get back at Bezos for his ownership of the Washington Post, which regularly publishes unflattering revelations about his presidency and business life. But he really should have thought twice before going after Amazon and its CEO.

There may be some chief executives who would be rattled by attacks from the president. Bezos is not one of them. You’ll notice that so far he hasn’t responded to Trump’s tweets, and he won’t. He’s too smart for that. And while Trump has managed to hurt Amazon’s valuation, you would be hard pressed to find a CEO who spends less time worrying about his company’s share price than Bezos. Eventually, the market will realise that Trump’s threats are toothless, and the stock will come back up again.

There is a final reason why Trump’s attacks on Amazon are so misguided. If he could put aside his venom for Bezos, he might be able to see that Amazon is a company that’s doing exactly what he says he wants American companies to do. It’s creating jobs, not just tech jobs in Seattle but blue-collar jobs in the warehouses it has built around the country. It pays most of the tuition when workers want to learn skills that will lead to better jobs. It’s in the process of choosing a second headquarters city where it will eventually employ up to 50,000 workers. It’s getting into health care in an effort to bring down costs. It treats customers better than any other tech company. Oh, and its chief competitor isn’t an American company but a Chinese one,

First Published: Wed, April 04 2018. 21:15 IST