Quantifying the Impact of Chinese Import Tariffs on Amazon Prepared - PowerPoint PPT Presentation

Excerpt from Final Presentation Quantifying the Impact of Chinese Import Tariffs on Amazon Prepared by: The Nicholas Center for Corporate Finance and Investment Banking December 6, 2018

Excerpt from Final Presentation Agenda 1. Executive Summary 2. Tariff Background 3. Our Methodology and Results 4. Recommended Strategy 5. Appendix 2

Excerpt from Final Presentation Section 2: Tariff Background 3

U.S. & China Trade is Critical for Excerpt from Final Presentation Both Countries and U.S. Retailers $130Bn in 2017 (goods only) $505Bn in 2017 (goods only) • China is #1 import partner (22% share) • U.S. is top 5 import partner (8% share) • China is #3 export market (after Canada and Mexico) • U.S. is #1 export market (18%) Largest U.S. Exports to China Largest Chinese Exports to U.S. 2017, $Bn 2017, $Bn Electrical Machinery 147 Ag 20 Machinery 110 Aircraft 16 Furniture 32 Machinery 13 Toys & Sports 26 Vehicles 13 Plastics 16 Electrical Machinery 12 0 50 100 150 0 10 20 Source: Office of the U.S. Trade Representative Executive Tariff Our Methodology Recommended Conclusion Summary Background & Results Strategy 4

Excerpt from Final No Significant Lessons Learned from Presentation Previous Tariffs: Major U.S. Tariff Actions Are Rare Since the Dismantling of the Smoot-Hawley Tariffs of 1930 U.S. Tariff Duties Collected As % of Total Imports Historical U.S. Tariff Actions Since 1930 20% General Name Year Goods Rate Duration (Yrs) Agreement on Duties Collected As % of Total Imports 1 Chicken Tax 1964 Light trucks, potato starch, dextrin, brandy 25% 55 Tariffs and Trade 2 Japan Motorcyles 1983 Japanese motorcycles 49% 4 (“GATT”) 3 Japan Electronics 1987 Japanese electronics (TVs, desktops, hand tools) 100% 4 Created 4 Steel 2002 Steel imports imposed by Bush 8-30% 2 World Trade 10% Organization (“WTO”) Created Median Duration of 4 Years 1 2 3 4 0% 1930 1947 1994 2016 Year Note: Chicken Tax Tariffs were implemented in response to tariffs placed on U.S. chicken imports by France and West Germany Source: United States Trade Representative, data shows U.S. imports for consumption, duties collected, and ratio of duties to value Executive Tariff Our Methodology Recommended Conclusion Summary Background & Results Strategy 5

Excerpt from U.S. Implementation of Chinese Import Tariffs Final Future Tariffs Will Be More Impactful to Amazon Presentation Delayed Already Implemented Threatened (as of 12/1/2018) 25% on the 25% on $50Bn 10% on $200Bn $255Bn same $200Bn • Effective 7/6/2018 • Effective 9/24/2018 • March 1, 2019 • Uncertain and 8/23/2018 (expected) implementation • January 1, 2019 • Products: • Products: (originally) • Potential products • Computing components • Motorcycles • Mobile phones • Furniture-related items • Turbines • Computing equipment • Tractors • Power tools and metals • Other consumer goods • Railroad parts • Apparel and woven fabrics Amazon Relevance Source: United States Trade Representative Trade Data, Peterson Institute Tariff Data Executive Tariff Our Methodology Recommended Conclusion Summary Background & Results Strategy 6

Excerpt from Final Presentation Section 3: Our Methodology and Results 7

Excerpt from Final Presentation Overview of Our Methodology 1 2 3 Estimated Cost to Amazon Our Strategic Based on Historical Data Additional Pricing Analysis Inputs 1a 1b Consumer Intermediate for Amazon Goods Goods • Current volume • Demand elasticities • Current volume • What is the future impact to Amazon? sold to U.S. retail sold to U.S. retail • Short-term vs. long-term impact? • Trade elasticities consumers consumers • What options are available to Amazon? • Amazon’s gross • Amazon’s share of • Amazon’s share of • What is the right strategy for Amazon? margin U.S. Retail U.S. Retail • Tariff rate by • Tariff rate product type • Pass-through rate • Pass-through rate to Amazon from to Amazon from suppliers suppliers Detailed Methodology Available in the Appendix Executive Tariff Our Methodology Recommended Conclusion Summary Background & Results Strategy 8

Excerpt from Final Presentation Conclusion 1. We believe we have identified a valuable framework to quantify the impact of Chinese import tariffs on Amazon’s retail platform and consumers 2. Our inputs are based on publicly-available sources, so we are sure they can be improved, especially with privately-available data at Amazon 3. We have designed our models in R and Excel so that Amazon can update the key inputs and assumptions if valuable to Amazon 4. We would like to thank Amazon for the opportunity to analyze this question, it has been an invaluable learning experience for the team Executive Executive Tariff Tariff Our Methodology Our Methodology Recommended Recommended Conclusion Conclusion Summary Summary Background Background & Results & Results Strategy Strategy 9