Trump declares war on Amazon for taking billions of dollars in subsidies from the Post Office - and it sets an ominous precedent for HQ2

Donald TrumpSara D. Davis / Stringer / Getty Images

  • President Donald Trump tweeted on Friday that the US Postal Service is undercharging Amazon, making the "Post Office dumber and poorer."
  • Amazon's deal with the USPS allows it to pay less to deliver packages than it would with other delivery services.
  • The backlash against Amazon could signal problems for cities offering the e-commerce company major financial incentives to host HQ2.

President Donald Trump has declared war on Amazon.

On Friday morning, Trump tweeted: "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?"

He continued: "Should be charging MUCH MORE!"

Screen Shot 2017 12 29 at 9.38.09 AMTwitter realdonaldtrump

Trump appears to be referring to the deal that the USPS has struck with Amazon along with some other e-commerce retailers. In the US, the postal service delivers an estimated 40% of Amazon packages the "last mile," or the last leg of packages' journey from shipping hubs to homes.

As a part of the deal, Amazon pays roughly half as much to have packages delivered by the USPS than it would have to pay FedEx or UPS, Bloomberg reports, citing Bernstein Research analyst David Vernon.

According to a Citigroup analysis from earlier this year, the average package would cost Amazon $1.46 more to ship through the USPS if costs were "fairly allocated." With Amazon shipping billions of packages a year, these subsidies quickly add up.

"It is as if every Amazon box comes with a dollar or two stapled to the packing slip - a gift card from Uncle Sam," Josh Sandbulte wrote in The Wall Street Journal in July. "Amazon is big enough to take full advantage of 'postal injection,' and that has tipped the scales in the internet giant's favor."

The deal also benefits the USPS in many ways. While the USPS posted a net loss of $2.1 billion in the most recent quarter, its package delivery is actually one of its profitable services, unlike letter delivery. With this in mind, it makes sense that the USPS would want to strike a deal with one of the biggest players in e-commerce, even if that means giving the company a better deal.

amazon warehouseReuters/Lucas Jackson

Distrust of Amazon is growing

However, while the USPS may see this as a win-win situation, Trump's tweet serves as a reminder that many Americans are souring on Amazon as the e-commerce giant grows ever larger.

USPS subsidies are far from the only deal Amazon is brokering.

Cities across the country are pledging millions of dollars towards everything from bullet trains to tax breaks if Amazon picks them as the site for its second headquarters. Philadelphia, for example, has already spent $245,000 on its HQ2 campaign, Philadelphia Weekly reported.

Amazon says HQ2 will bring 50,000 new jobs, and that the company will invest $5 billion in the construction of its new headquarters. As a result, spending hundreds of thousands - or millions - of dollars to attract the company can seem justifiable by city and state governments.

But, it still adds up to millions of dollars of taxpayers' money being spent on trying to win over Amazon.

Amazon is no longer a brand beloved by all, as seen in the president's tweet. And, as state and city governments hope for a win-win situation for HQ2, they'd be wise to remember that not everyone wants their tax dollars to be spent trying to butter up Amazon.

The Future of Retail 2018 by the BI Intelligence Research Team.
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