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Trump is going after Amazon for the wrong issue: It's China, not taxes

  • Trump is taking on Amazon over its tax treatment.
  • He hasn't said anything about Amazon's massive business from China, even though it fits right into his platform.
  • In many cases, its cheaper for Chinese sellers to send packages to the U.S. than it is for domestic merchants to send from one U.S. city to another.
President Donald Trump, Microsoft CEO Satya Nadella and Amazon CEO Jeff Bezos attend a meeting of the American Technology Council in the State Dining Room of the White House June 19, 2017 in Washington, DC.
Getty Images
President Donald Trump, Microsoft CEO Satya Nadella and Amazon CEO Jeff Bezos attend a meeting of the American Technology Council in the State Dining Room of the White House June 19, 2017 in Washington, DC.

If President Donald Trump wants to go after Amazon, he's picking the wrong issue. It's China, not taxes.

On Wednesday, Amazon shares dropped 5 percent after Axios reported that "Trump has talked about changing Amazon's tax treatment because he's worried about mom-and-pop retailers being put out of business."

White House press secretary Sarah Huckabee Sanders denied later in the day that Trump has any imminent moves planned, but Trump followed up with a tweet Thursday morning that was critical of Amazon.

Taxes are messy, but that's not how Amazon is killing small retailers.

As of last year, Amazon has been collecting sales taxes in every state where one applies. Third-party sellers — those who use Amazon's platform for distribution — have to collect sales taxes in a growing number of states and, in some cases, Amazon is required to play the role of enforcer.

Trump has seemingly had it in for Amazon CEO Jeff Bezos since the presidential campaign, presumably because of how The Washington Post, which Bezos also owns, covered him as a candidate and now as president. Throughout his attacks, Trump has criticized Amazon for being a "no profit" company, bilking the United States Post Office, not paying its fair share of taxes and for supposedly having sinister ties to The Washington Post.

But Trump has yet to connect Amazon to his pet issue: trade.

Chinese sellers abound on Amazon's marketplace

Amazon is a showcase for the U.S.-China trade imbalance. Chinese manufacturers are easily able to get their products into Amazon's U.S. fulfillment centers and onto the platform, taking advantage of shipping subsidies that apply to goods coming from China and programs from Amazon that make it easy for small businesses to plug into Amazon's sophisticated distribution system.

As CNBC has been reporting for the past two years, U.S. sellers have taken to policing the Amazon Marketplace to protect their intellectual property from counterfeiters. And while there are legal actions American businesses can take against copycats in the U.S., sellers have virtually no recourse when it comes to pursuing merchants in China.

"They don't have to do any due diligence to make sure they're not breaking any U.S. laws," said Meredith Erin, co-owner of online clothing company BoredWalk in Los Angeles. "They can infringe on American IP with impunity."

Erin said she pulled her T-shirt brands off Amazon in 2016 because of the counterfeit problem, though it's still common for foreign sellers to steal her images and sell them on their own products. She said she could spend her whole day scouring the site for knockoffs from China and elsewhere but that wouldn't leave time to build her business.

According to a December report from Research and Markets, losses suffered as a result of online global counterfeiting reached $323 billion last year.

Trump has been slamming China since he announced his candidacy for president in 2015. During the campaign, he constantly accused China of stealing American jobs and said in a debate that it was "using our country as a piggy bank."

Last week, Trump signed an executive memorandum to impose retaliatory tariffs on up to $60 billion in Chinese imports and said it was just the "first of many" trade actions he was preparing.

Nothing about Chinese sellers on Amazon, though.

Michael Feigin, a patent and trademark attorney with offices in New York and New Jersey, said he's hearing from more Amazon sellers by the day because of the influx of Chinese fakes. He works with clients to help get counterfeits removed by going through Amazon's takedown process, only to see the same knockoffs pop up the next day under different listings.

On the flipside, he said, foreign sellers have figured out how to game the system by submitting infringement claims against legitimate rival sellers to get them temporarily suspended in order to get more business.

"It's like the Wild West," said Feigin. "If you want to go and sell your products in China you're going to have a hard time doing that because there are all sorts of trade restrictions, but for Chinese companies to sell on Amazon, it's no problem."

Amazon said in a statement that it prohibits the sale of counterfeit goods, investigates all claims and gets rid of "counterfeit items as we become aware of them." The company also said that it's removing "bad actors from selling on Amazon."

Shipping on the cheap

While the deluge of foreign goods is making life hard for U.S. sellers on Amazon's marketplace, the issue is much bigger than a single company or platform.

In 2011, the U.S. Postal Service started a program with Hongkong Post called ePacket to let businesses in China and Hong Kong send packages to the U.S. at very low rates. Amazon has been a vocal opponent of such measures, which make it harder for U.S. businesses to compete on shipping costs.

Paul Misener, an Amazon vice president, told members of Congress in 2015 that "the clear losers are American businesses selling to American consumers." He pointed out that in many instances it's cheaper to send the same item from China to the U.S. than it is from one U.S. city to another. Even before that agreement, the Universal Postal Union (UPU), an agency of the United Nations, created price disadvantages for U.S. exporters.

Last year, Erin created a petition on the website Change.org that called for the Trump administration to end subsidized ePacket shipping "to protect our economy and consumers."

The petition received too few signatures to require a White House response. The challenge, she said, is that discounted imports are a boon to many American e-commerce businesses because they provide easy access to cheap materials and allow private label brands to buy products in bulk from China and mark them way up on sites like Amazon. Erin, on the other hand, gets all of her materials from the U.S. and Latin America.

"Half are in my position, designing and manufacturing their own products and are concerned like I am," Erin said. "The other people are benefiting from the current situation."

Trump hasn't said a word.