Small Business

Counterfeit goods from China are crushing American small businesses – and they're calling on Trump to fight back

Key Points
  • Over the past month, the Trump administration has announced new initiatives to crack down on the sale of Chinese counterfeit goods on e-commerce platforms.
  • Some small businesses say more needs to be done as counterfeits continue to eat into their sales.
  • The Department of Homeland Security reported seizures of counterfeit goods at U.S. borders have increased ten-fold over the past two decades, with nearly 90% of seized products in 2018 arriving from mainland China or Hong Kong.
How the US government and Amazon are fighting Chinese counterfeits

WASHINGTON – A.J. Khubani took a chance when he pulled a seat up to President Donald Trump's table at the golf club in Bedminster, New Jersey nearly two years ago.

"Once we said counterfeits on Amazon, that's all we had to say, we had his attention," Khubani told CNBC.

Khubani explained to the president how counterfeit products coming from China and sold on Amazon are destroying his business.

"The Chinese counterfeiters pop up so fast, the moment you take them down another one pops up," he said. "It is impossible."

Khubani's company, a New Jersey-based firm called Telebrands which sells products through television marketing, is one of many small businesses struggling to fend off counterfeits online. The Trump administration has started to take note, reveling in the opportunity to attack two of the president's favorite targets: China and Amazon.

A.J. Khubani displays real and counterfeit versions of Telebrands products

In January, the Department of Homeland Security issued a report detailing the rise of counterfeiting on e-commerce platforms and vowed to crackdown.

"International e-commerce players must step up do and do more," acting DHS Secretary Chad Wolf said when the report was released.

A week later, President Trump signed an executive order aimed at stopping the sale of counterfeit products from abroad sold online to U.S. consumers. Earlier this month, White House advisor Peter Navarro demanded Amazon CEO Jeff Bezos testify about the issue, an idea welcomed by House Judiciary ranking member Rep. Doug Collins, R-Ga.

"It's important we address the sale of online counterfeits," Collins said in a statement to CNBC. "I'd welcome any witnesses from companies who can help us do that."

Some small businesses say more needs to be done as counterfeits continue to eat into their revenue.

Boulder, Colorado-based Nite Ize, which sells mobile and lighting accessories, said it removed more than 75,000 fake listings from online marketplaces last year.

"The amount of resources and money that we have to spend chasing down counterfeits has become monumental," Clint Todd, Nite Ize chief legal officer, told CNBC.

Made in China

The economic cost of counterfeiting is mounting around the world. According to the OECD, counterfeit and fake goods accounted for 3.3% of all global trade, worth $509 billion in 2016. The DHS reported seizures of counterfeit goods at U.S. borders have increased tenfold over the past two decades, with nearly 90% of seized products in 2018 arriving from mainland China or Hong Kong.

"The epicenter, ground zero, of the manufactured counterfeit goods is China," said Bob Barchiesi, president of the International AntiCounterfeiting Coalition, whose members include brands like Apple, Louis Vuitton and Disney.

China pledged to "significantly increase" training for border enforcement personnel and to publish updates about its efforts to fight counterfeits as part of the phase one trade agreement with the U.S. signed earlier this year.

Barchiesi said China will only take the issue seriously once businesses in the country experience the costs of counterfeiting themselves.

"I think it gets solved when you have Chinese companies and Chinese innovation and they start getting counterfeited," he said.

Nite Ize's Todd said 99% of the counterfeit versions of its products originated from China.

"The supply chain, the components, the raw materials, all of the things that you need in order to make counterfeits, you have those set up in China," he said.

In 2018, U.S. Customs and Border Protection officials seized a shipment of 300 counterfeit Nite Ize accessories that had been sold through Amazon. Amazon joined a lawsuit filed by Nite Ize to try to track down the counterfeiters' identities.

"They put up fake stores with fake names and fake addresses," Todd said. "So you're really left to find some breadcrumbs in the electronic data that's out there.

Counterfeit Nite Ize products
Nite Ize

Anti-counterfeiting efforts

Amazon launched new anti-counterfeiting initiatives last year, like Project Zero, which allows brands to remove fake listings on the marketplace. The company said it invested more than $400 million to fight fraud, counterfeit and other forms of abuse in 2018.

In a statement to CNBC, an Amazon spokesperson said, "We are actively fighting bad actors and protecting our store and we will continue to work with brands, government officials, and law enforcement."

Amazon is not the only online platform dealing with counterfeit products. Alibaba, eBay and Walmart have also suffered from a growing number of fake goods on their sites.

In January, a handful of e-commerce players including Amazon and eBay joined a pilot program with U.S. Customs and Border Protection, agreeing to share data about incoming shipments to try to lower the number of counterfeits arriving in the country.

U.S. Customs and Border Protection officials inspect boxes at the Port of New York/Newark
Shawn Baldwin | CNBC

Legislation introduced in 2019 by a bipartisan group of senators aims to give U.S. Customs and Border Protection officers wider authority to seize products that infringe certain types of patents.

"Frankly it's more important that we find ways to protect the creators who help make American society so rich and so robust," Sen. Chris Coons, D-Del., one of the bill's sponsors, told CNBC.

For Telebrands' Khubani, tackling counterfeiting is necessary to keep American entrepreneurship alive.

"We put all these resources, time, energy, money, the design, make sure the consumer wants to buy it, come up with a marketing campaign to launch the product and do all that effort and find within 30 days the product dies a very fast death because of counterfeits," he said. "There's not much incentive to be innovative and continue to come up with new products."

WATCH: How the U.S. government fights Chinese counterfeits