President Trump once again took to Twitter this week to criticize American e-commerce giant Amazon, claiming that the company is ripping off the U.S. Postal Service. Trump’s antagonism to the company is nothing new, having previously claimed that Amazon is destroying jobs and not paying its fair share of taxes. Trump’s antagonism to the company, however, seems to stem more from the disruption it is causing to the traditional industries he adores, rather than any real economic harms.
First, the Postal Service, which has undeniably been losing money over the last decade, having reported a net loss of $2.7 billion in 2017, would be doing much worse were it not for Amazon. While a loss-making venture as a whole, parcel delivery by the USPS, which is what Amazon mostly uses, is the fastest growing revenue raiser, having risen 11.8 percent in 2017. Amazon has been so crucial for USPS revenues that in 2014, they began a deal with the tech behemoth to introduce Sunday delivery, responding to customer demand and increasing revenues.
If Trump were to reduce the favorable treatment that Amazon receives from USPS, then the company could easily move to other package retailers such as UPS and FedEx that would be more than happy to increase their share of Amazon deliveries. Unlike the monopoly First-Class Mail arm of USPS, which is declining in revenue and has the highest operating cost, package delivery is a competitive and well-developed market. This means that there is little that could be done to raise costs on Amazon without losing business for the USPS.
The USPS-Amazon relationship, however, is immensely valuable for consumers, and is of profound economic benefit to the U.S. Lowering the cost of delivery increases the volume of transactions that occur on Amazon, benefiting its numerous sellers. The company allows people to effectively open their own little online stores without the cost of setting up physical locations, maintaining inventory stock (thanks to Fulfillment by Amazon), or even the marketing hassles of selling independently online. Freeing up all this capital through the greater efficiency that the Amazon platform offers allows for people to have more opportunity and increased disposable income.
This is why Trump’s dislike of Amazon putting traditional retailers out of business is so misplaced. Amazon’s business model has allowed it to create significantly more jobs than lost in other industries, even as the company embraces automation technologies. Data by the Bureau of Labor Statistics revealed that in 2017 Amazon’s net job creation outpaced that of 46 states, behind only the total new jobs added in Texas, California, Florida, and New York. Even if traditional businesses decline, Amazon itself is providing more jobs, with higher pay, than many of its competitors had.
But the jobs Amazon explicitly creates are not the entirety of its economic contribution. In 2017, there were more than 5 million sellers on Amazon, with the marketplace value at more than $135 billion a year. In addition, 100,000 sellers reported sales of more than $100,000 a year. The decline of traditional retailers is not due to Amazon alone having dominance, but the platform it provides for a plethora of independent businesses and individuals to enter the retail space. Amazon has reduced barriers in markets from publishing to resale to consumer electronics, increasing competition among small players, and lowering end-user costs.
All of this does not even begin to capture the economic value Amazon has created through its AWS cloud service, which has revolutionized business operations for both traditional and new industries. There are more than 1 million active AWS users from large established companies such as Unilever to technology unicorns like Netflix to numerous startups who Amazon has allowed to start their businesses for low monthly fees. The number of new companies that have come into existence thanks to AWS, and the number of jobs that would be lost if it did not exist is impossible to calculate, but is undoubtedly significant.
The antagonism Trump is showing to Amazon is profoundly misplaced, and if his attacks on Amazon lead to antitrust action, this could spell the death knell for many innovative businesses that have come to depend on the company. The digital economy has been one of the most transformative tools for expanding economic opportunity and fostering innovation, protecting the incumbents it disrupts would hurt us all.
Ryan Khurana (@RyanKhurana) is a research fellow at the Consumer Choice Center and a Young Voices Advocate.
