Will Tariffs Help or Hurt Amazon's Business?

Amazon (NASDAQ: AMZN) generated $638 billion in sales last year, with its online marketplace accounting for the bulk of its top line. It's a core part of its business, but there are also many other low-cost marketplaces and sites contending for consumers. Amazon has, for the most part, been winning -- it's one of the most valuable companies in the world, with a market cap close to $2 trillion.

Tariffs, however, introduce a new risk for the e-commerce giant. While they might help fend off low-priced rivals from overseas, many of the sellers on Amazon's marketplace will also have to raise prices to offset the impact of tariffs. So will tariffs actually hurt Amazon's business, or will they end up helping the company?

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Why tariffs could help Amazon

The big benefit for Amazon is that with tariffs imposed -- particularly on China, where there's a lot of competition from cheap online retailers -- they could drastically reduce competitive pricing pressures. If customers aren't able to buy ultracheap products from Temu (which is owned by PDD Holdings) or Shein, then that may result in more people buying from Amazon's marketplace.

Last year, in an effort to fend off competition from these cheaper sites, Amazon launched "Amazon Haul" -- a program that would offer lower-priced goods, but at the cost of slower shipping speeds. While sites such as Shein and Temu offer lower prices, consumers typically have to be much more patient with their purchases; Temu normally takes more than five days to ship an order.

Temu and Shein have already begun to warn customers that their prices will increase due to tariffs. That may result in less of a gap between the prices of goods on their websites and those on Amazon, and it may eliminate the need for Amazon Haul.

Why tariffs may hurt Amazon

Amazon isn't going to emerge unscathed from any tariff war involving China, as close to half of its sellers are based there. And many of them are saying the same thing as Temu and Shein: They will have to raise their prices due to tariffs.

If there are widespread increases in prices on Amazon's platform, or sellers have no choice but to exit entirely, that could drastically reduce the appeal of the site for consumers; it may lead them back to brick-and-mortar stores, including dollar stores or their local Walmart. Given its strong dependence on having many sellers on its marketplace to offer a wide variety of products, Amazon may have a difficult time growing sales.

Amazon was already projecting timid guidance for the first quarter of 2025, expecting sales growth of just 5% to 9% compared to the same period a year ago. Tariffs could result in an even slower rate of growth in future quarters.

Do tariffs make Amazon a better or worse buy?

Like many retailers, Amazon needs the economy to be doing well for its business to be booming. Tariffs don't accomplish that, and they can make it a whole lot more challenging for the company to grow quickly.

However, I still think that with a vast marketplace and convenient shipping options, Amazon will remain the go-to option for many people who are shopping online. It may experience a bit of a slowdown due to worsening economic conditions, but it may also have more people come to its site if products on Temu and Shein don't look so cheap anymore. Amazon offers a better value proposition overall, which is why it can win out in the end. Plus, while its marketplace is key to its business, the majority of the company's operating profit does come from Amazon Web Services, its cloud computing segment. Amazon's strong diversification can help it navigate through these challenging market conditions.

Although the company will likely face headwinds this year, Amazon remains an excellent buy on any kind of weakness, simply because of how much growth potential it has. While the e-commerce stock is down more than 20% this year, I don't doubt that it will end up recovering in the long haul.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.