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USA Trump, Nadella und Bezos 2017
Image: Getty Images/C. Somodevilla

Is Trump's criticism of Amazon justified?

Srinivas Mazumdaru
April 4, 2018

President Trump has recently been bashing Amazon, accusing it of not paying its fair share of taxes and posing an unfair challenge to conventional retail stores. Despite bluster, concrete action is unlikely, say experts.


Online retailing behemoth Amazon has found itself in the crosshairs of US President Donald Trump's irate tweets in recent days. In a series of posts, the US president accused the company of profiteering at the expense of the US Postal Service and endangering the survival of conventional retail stores through its pricing policies.     

Trump promised unspecified changes to resolve the problem and level the playing field between e-commerce firms and conventional stores.

"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!" Trump tweeted on March 29.

A couple of days later, he claimed that the US Post Office was losing billions of dollars in revenue by delivering packages for Amazon.

And, on April 2, the president wrote: "Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country...not a level playing field!"

Trump also lambasted The Washington Post, owned by Amazon founder and CEO Jeff Bezos, labeling it as a "lobbyist" and its coverage as "fake news."

There's speculation that the US president's latest salvo of accusations against Amazon is a result of his fixation on Bezos. "He's obsessed with Amazon," one Washington insider was recently quoted by Axios as saying. It's reported, however, that the White House was not planning to take any concrete action against the company, at least for now.

"This is just the latest example of how Trump acts — without regard for truth and with no clue about how to actually get laws and policies changed," said A. Douglas Melamed, a law professor at Stanford University and previous acting assistant attorney general in charge of the antitrust division at the US Justice Department.

"If Trump had a serious policy concern about e-commerce or Amazon, the appropriate course of action would be to direct his domestic policy folks to look into the matter and prepare recommendations based on fact and understanding the full context that gave rise to the concern," Melamed told DW, adding: "But Trump is not concerned about policy; he cares only about punishing enemies and making ignorant primal screams on Twitter to satisfy his political base."

A longstanding problem

Portraying himself as the protector of traditional and mom-and-pop retailers, Trump has accused Amazon of driving them out of business while profiting from an unfair tax advantage. In fact, traditional retailers have long complained against tax laws that allow Amazon and other e-commerce firms to avoid charging many customers a sales tax on their purchases.

US law states that a retailer does not have to charge sales tax on purchases made in a state where it does not have a presence. Technically, taxpayers are still required to pay "use" taxes on their online purchases, but compliance with those rules has been found to be abysmal.

This loophole has unfairly advantaged online retailers, it's argued, as they maintain large distribution centers in certain locations instead of operating stores in every state across the country. In this way, e-commerce firms could undercut competition from brick-and-mortar outlets by not having to charge that tax.

Researchers from the Ohio State University conducted a study where they analyzed household spending data in 19 states that, between 2012 and 2015, began implementing laws requiring Amazon.com and other online retailers to collect sales tax from their customers. They examined how people's buying habits changed after their state had decided to implement a so-called "Amazon tax."

The study concluded that Amazon sales "fall by 9.4 percent after implementation of an Amazon Tax." "The effect is more pronounced for large purchases, for which we estimate a reduction of 29.1 percent in purchases."

Nevertheless, Trump is "wrong on the facts, as usual," said Melamed. "The issue here concerns state sales taxes. These taxes are owed by the customer, not the vendor," he underlined, stressing that the issue is "whether Amazon collects the taxes on behalf of the states, not whether it pays taxes it owes."

The problem of collecting state sales taxes has been around for decades, argue experts. "It is common for customers in a store in, say New York, to have the merchandise they buy shipped to another state in which the vendor does not do business in order to avoid New York state sales tax. E-commerce exacerbates the problem because of its scale, but the problem is not unique to e-commerce," explained Melamed.

Although Amazon now collects sales tax in every state that has it, third-party vendors that use the Amazon platform for their sales still do not do so in most states.

Trump's criticism of the company regarding payment of taxes is also paradoxical, as he bragged during his presidential campaign that not paying any federal income taxes "makes me smart." Moreover, his corporate tax cut legislation is based on the premise that corporations predictably and appropriately take steps to reduce tax liability and respond to changes in tax laws for that purpose. His lashing out at Amazon is therefore "at best ironic and disingenuous," said Melamed.

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A titan of digital commerce

Trump's Twitter rants, though, have stoked investor concerns and triggered speculation that the government could increase regulation of the company, which emerged as a titan of 21st century commerce.

Amazon today is more than just an online retailer. It's also a delivery and logistics network, book publisher, payment service, producer of television and movies, hardware maker and provider of cloud server space, among other things. It's estimated that about a half of all online customers go first to Amazon to look for products and the company has about 43 percent of the US e-commerce market.

Nevertheless, it accounts for less than 4 percent of total US retail, according to eMarketer, a market research company.

Some experts believe the Trump administration, even if it wants to, may find it tough to launch antitrust proceedings against Amazon, as current regulations typically only kick into effect when a company is dominant in one market or is hurting consumer.

"Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole; antitrust doctrine views low consumer prices, alone, to be evidence of sound competition," Lina Khan, researcher at Yale Law School and an expert on antitrust law and competition policy, wrote in a report published last year.

"By this measure, Amazon has excelled; it has evaded government scrutiny in part through fervently devoting its business strategy and rhetoric to reducing prices for consumers," she pointed out, adding: "With its missionary zeal for consumers, Amazon has marched toward monopoly by singing the tune of contemporary antitrust."

More bluster?

But the government could resort to other measures to penalize the firm. For instance, it is reported that the president's advisers are encouraging him to cancel Amazon's pending multibillion-dollar contract with the Pentagon to offer cloud computing services.

If the administration's measures increase the costs to the company, that would erode its profitability, a metric with which it struggled for a long period of time. Despite its staggering growth, the company — which began as an online bookstore in 1995 — consistently recorded losses for the first seven years it was in business.

Bezos has long stressed that investing in future growth is more important than hitting quarterly earnings targets. In the last quarter of 2017, however, Amazon recorded a record profit of nearly $2 billion, driven by strong sales of its Alexa, Prime and Cloud services as well as its Whole Foods chain.

Despite the US president's tweets, observers say it is highly unlikely that Congress will pass any new legislation against Amazon. 

"There will be more bluster from Trump, but I do not expect any changes in law or policy. Like other companies that Trump has targeted, Amazon might take some symbolic actions to give Trump a meaningless apparent victory in order to get him off its back," said Melamed.

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