Is Amazon really costing the US Post Office billions of dollars a year, as Donald Trump suggests?

Donald Trump has issued a series of Tweets in recent days claiming that Amazon is ripping off the US “Post Office”.

He has claimed: “It is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars….This Post Office scam must stop. Amazon must pay real costs (and taxes) now!”

And also: “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!”

And most recently: “I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy. Amazon should pay these costs (plus) and not have them bourne by the American Taxpayer.”

But is Trump right? Is the US Post Office is losing money? And, if so, is Amazon to blame?

Is the US Post Office like the UK’s Post Office?

No. The United States Postal Service (USPS) is an independent agency of the American federal government, dating back to the foundation of the Republic in the 1700s.

It is legally obliged to provide mail services to all Americans, regardless of where they live, and for at least one mail product, at a uniform price.

The UK’s Royal Mail has an analogous “universal service obligation” (USO) for the UK. The Royal Mail was privatised in 2013. But the USO remains binding, by an act of Parliament, on the private company.

The Post Office in the UK is not the delivery service, but the network of branches that offers a range of postal, Government and financial services. It is a separate business from the Royal Mail, with an independent board. And it remains in public ownership.

So is the USPS losing money, as Trump claims?

Yes. In its most recent report to Congress, the USPS reported total revenues of $69.6bn and an overall loss of $2.6bn for 2017 financial year. This followed an equivalent loss of $5.6bn in 2016 and $5bn in 2015.

Total accumulated losses since 2008 are $65.1bn

Is Amazon to blame for all this red ink?

No. A good deal of the damage to the USPS’s bottom line seems to be a result of a 2006 law mandating it to increase contributions to a fund for retired workers’ health benefits.

The e-commerce driven parcel delivery element of the USPS is doing quite well, bringing in $19.4bn in 2017, up from $13.5bn back in 2014 and expected to rise to $21.4bn in 2018.

By contrast revenues from first-class mail, marketing mail and international mail all fell in 2017, reflecting the fact that Americans, like most people, send fewer letters than they used to.

Deals with private firms like Amazon are estimated to account for around $7bn of the parcels revenue, although we have no breakdown of which companies pay what precisely. We can be reasonably confident there is no loss because the law forbids USPS to price its parcel delivery services at below cost.

So is there any issue with Amazon and the USPS’s finances at all?

The basis for Trump’s “$1.50” subsidy claim appears to be a calculation from an analyst at the US investment bank Citigroup that USPS have been charging the likes of Amazon $1.46 below the market rate for parcel delivery.

The USPS says it can afford to charge this lower rate because it has lower costs – since it routinely visits more homes every day.

One could argue that the USPS should charge Amazon – and other parcel companies – what the market will bear. But that is very far from the claim that Amazon is costing the USPS money.

As for Trump’s claims about Amazon undermining regular US retailers, that is a familiar charge from the UK debate and obviously true to the extent that more people are doing their shopping through the dominant e-commerce platform.

But is this unfair competition?.

There are questions about Amazon’s meagre UK corporate tax payments, given the large revenues it generates here. To the extent that Amazon is unfairly avoiding these taxes it can be said to be unfairly disadvantaging bricks and mortar UK retailers, which pay the corporation tax in full.

In the US, in 2016 Amazon’s parent company made provision for $1.4bn in corporation tax in 2016, on profits of $4.2bn – an effective tax rate of 33 per cent. But net global sales were a collosal $136bn.

That wafer thin profit margin – just 3 per cent – represents the huge investments Amazon is making (in a vast number of area from delivery drones, to artificial intelligence, to TV programmes) in order to expand its market share in every direction. Corporation tax is levied on profit, not revenues, and this is a valid reason why Amazon’s corporate tax base is low relative to other traditional US retailers which invest less.

But there are bigger issues over the extent to which various economic and technological “network effects” mean the retail playing field is structurally tilted in Amazon’s favour and that it can crush even strong competitors through its massive spending power.

Trump’s complaints, though, do not touch on any of this, instead focusing on the spurious claim about subsidies to Amazon through the postal service.