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Money News

Why President Trump is Going After Amazon

March 29, 2018

  • President Trump criticized Amazon for killing jobs and avoiding sales taxes
  • Trump has a history of going after Amazon and its founder, Jeff Bezos
  • Trump’s comments caused Amazon’s stock to drop
4 min read

The e-commerce giant Amazon found itself singled out by President Trump this week.

On Thursday, Trump lashed out at the retail giant, alleging that the online retailer is violating antitrust laws, paying too little in taxes, and abusing the U.S. Postal Service (USPS).

In response, Amazon’s share price fell, and the slide continued on Thursday morning.

“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 about the company.

Why is Trump looking into Amazon?

Amazon, and other large retailers including Walmart, have thrown the retail industry into a tailspin, by undercutting smaller bricks-and-mortar competitors with rock-bottom prices and their enormous reach. Many long-standing retail chains, such as Toys ‘R’ Us and Borders, have shut down over the past decade, and the sector has shed tens of thousands of jobs.

Amazon has also become a multi-billion dollar behemoth with reach into numerous industries, as it’s moved from ecommerce to businesses including healthcare, cloud computing, and entertainment. In 2017, Amazon also ventured more deeply into the grocery sales, when it acquired Whole Foods.

Amazon’s stock price sank more than 4% by the end of trading on March 28, and the slide continued on Thursday morning as the drop cost the company $53 billion in market value and Jeff Bezos, Amazon’s founder and CEO, $5.2 billion. The company did not issue a response to the president’s Twitter remarks.

Good to know: Antitrust laws are a collection of legislation, stretching back to the 19th century in the U.S, that attempt to prevent powerful monopolies in business. Monopolies are when a single company has too much control or influence over a single market. Monopolies can make it difficult for smaller companies to compete.

Lack of competition can also drive up costs, and result in fewer choices for consumers. The Federal Trade Commission and the Department of Justice investigate antitrust cases, which can result in steep fines for companies found to be violating the laws.

Trump and Amazon, more background

This isn’t the first time Trump has made Amazon the target of his displeasure. The news has buzzed with reports about how the president is “obsessed with Amazon”, and has actively sought ways to rein in the company.

Trump’s main gripe focuses on whether Amazon should be collecting online sales taxes in the states where it does business– something that the Supreme Court will soon hash out — and its growing dominance in the retail industry.

The president has said that the company doesn’t pay local or state taxes, has a one-sided relationship with the USPS.

Despite Trump’s allegations, experts say that Amazon has actually been a boon for the USPS, and that it does collect sales tax.

“In the U.S., Amazon collects sales tax on its owned inventory in all 45 states that have a state sales tax and Washington, D.C.” Stifel Financial Corp. analyst Scott Devitt told Marketwatch, following the president’s tweet. “Amazon does use USPS but, if an arrangement were to become uneconomic to Amazon, Amazon has plenty of options.”

The president’s concern about Amazon’s business practices may also be more personal than he lets on.

He has criticized the company previously on several occasions, and he frequently bashes the Washington Post, which Amazon founder Bezos owns.

The president and the private sector

Trump hasn’t been afraid to put his fingers on the scale in order to sway deals in the private sector over the past few months.

Recently, he killed a merger between two of the world’s top microchip makers, referencing national security concerns. And his Justice Department has sued to stop a merger between AT&T and Time Warner citing anti-trust concerns.

The president has made no secret of his personal dislike for CNN, a unit of Time Warner. This may have played a role in the Justice Department’s attempt to squash the deal, according to some experts.

Tech companies feeling the pain

Amazon is only the most recent tech company to come under increased scrutiny in recent weeks.

Facebook, for example, is dealing with the fallout of a data breach related to the 2016 presidential election. Mark Zuckerberg, Facebook’s founder and CEO, is expected to testify before Congress about the company’s privacy practices.

Like Amazon, Facebook’s stock price dropped more than 20%  following reports of the breach.

Why should it matter to you?

The president’s decision to single out a company like Amazon has important ramifications for the company and for markets.

The attack on Amazon pushed down key indexes, including the Dow and Nasdaq.

Additionally, Trump’s ire toward Amazon could translate into punitive policy in the form of increased regulation. Treasury Secretary Steven Mnuchin said last summer that the administration could take action in the near future, perhaps by changing Amazon’s tax treatment.

Concerns about the scale and near-monopoly power of numerous tech companies has made some investors nervous — not just about Amazon, but about the tech industry as a whole.

By Sam Becker
Sam Becker is Stash's financial writer.

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