Amazon and Chinese companies have teamed up to bypass Main Street and ship goods directly to doorsteps. This is hurting American manufacturing as well as local city governments. To accomplish this, they're misleading Americans by putting out press releases that cherry-pick statistics.
Follow these 3 steps to see the issue at hand:
1. In an Amazon press release last week, Amazon claimed:
"Independent third-party sellers – primarily small and medium-sized businesses – made up 58% of all physical gross merchandise sold in Amazon’s stores in 2018 and their sales far exceeded $2 billion on Prime Day in July this year.”
Amazon went on to say:
“Small and medium-sized businesses are the lifeblood of the economy, and we are committed to empowering them,” said Nicholas Denissen, Amazon Vice President of Small Business.
Based on this press release, you’d think that Amazon is helping American indie and small businesses. You would think this press release is good news for America and its communities.
But that’s not the case.
I’ll share why…
2. This past Saturday, the Wall St. Journal shared this fact:
40% of sellers on Amazon's Marketplace are based in China.
3. I believe this is what Denissen is really saying:
"Small and medium-sized CHINESE businesses are the lifeblood of the economy--and they are Amazon’s bottom line. Amazon is committed to empowering them--even if it hurts American businesses and communities.”
Almost half of all businesses on Amazon are Chinese, and they are the ones benefitting. Using Amazon and UPS, Chinese factories are bypassing our local stores and Main Street shopping communities. Mom-and-pop stores are getting very little of the $2b Prime Day sales cycle. Almost $1b of these Prime Day sales are going to Chinese companies, and China is using this capital to grow its economy. It’s due to this transfer of wealth (and manufacturing) to China that experts say we can’t make an iPhone in America and our traditional manufacturing cities have unemployment issues.
In addition to these Chinese-based orders bypassing our local businesses, the orders are defunding our local schools. Third-party sellers are not required to pay taxes on many purchases, and tax collection by a China-based entity is likely not happening. When a customer in Raleigh, NC buys a pair of sunglasses on Main Street, that store collects tax and that tax helps pay for schools, roads, trash pickup, and safety services. When that customer buys from a China-based company on Amazon, I don't believe that Raleigh nor North Carolina receive any tax revenue. Now, imagine that millions of customers do this. Amazon will sell $160b in goods to Americans this year via third-parties on its marketplace. Remember: forty percent of Amazon third-party sellers are based in China. If up to 40% of these purchases will not be taxed, that's $64b in purchases that are not taxed. Assuming an average tax rate of 6%, states may be losing almost $4b due to Chinese businesses on Amazon.
How much is $4b? That's about enough to run all of New York City for a month, including the police officers, firefighters, teachers, and more.
Speaking of New York City, you’ll recall that my city competed and won—then lost—the new Amazon HQ. I had mixed feelings about NYC competing, and I likely should have been completely against it. But here is why a small part of me wanted it: I was greedy to help my city get more jobs and grow its tax base due to those new jobs.
Why I was wrong: I was putting my little piece of America ahead of my fellow American’s well being. My city would’ve received X jobs and Y tax revenue while Amazon would’ve continued to kill 1000X jobs across America and help avoid collecting 1000Y in taxes. That would’ve been bad for my friends in my hometown of Rochester and millions of Americans across the country. (Rochester competed in the contest, too. Its goal was sadly the same as NYC’s: win and screw over the rest of America.) Over 100 cities and their local governments made the same selfish, shortsighted math mistake that I did. We offered frankincense, mir, and helipads to a job-killing, tax-cheating, outsourcing machine that teamed up with a foreign country and that pitted us against each other.