Hidden cost of tariff increases: Rise in counterfeit goods

Image source: Freepik

While the intention when imposing tariffs for imported goods may be to foster economic growth by protecting local industries, balancing trade deficits and defending against foreign dependencies, a tariff increase could also have the ‘knock-on’ effect of growing the demand for counterfeit goods.

Tariffs can be counterproductive in the fight against counterfeit goods

Higher tariffs on imported raw materials increases the price of genuine products. For manufacturers to remain profitable, the sales prices of these products are also increased.

As a result, consumers previously torn between buying a genuine product or a cheaper imitation will lean towards buying counterfeit. Increased tariffs can also lead to shortages and restricted access to genuine products, fuelling the proliferation of counterfeiting.

Historically, we have witnessed evidence of this. In 2018, the US increased tariffs on Chinese imports. The increased production cost for legitimate goods prompted consumers to seek out cheaper alternatives to popular items such as Nike shoes, Apple accessories and luxury handbags.

Counterfeiters exploited these conditions by offering less expensive imitations to expand their market presence and as a result, sales of counterfeit versions surged on e-commerce sites.

In the 1950’s, Brazil used import tariffs to protect to protect local manufacturing in its auto-industry. This led to shortages of affordable genuine parts, and counterfeit brake pads, airbags, and filters began flooding the market, posing safety risks.

This century, countries like the UK and Australia have taken hard stances against smoking, including increasing excise taxes and tariffs on imported tobacco. Instead of quitting, many consumers turned to illicit and counterfeit cigarettes, smuggled in to bypass the tariffs.

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Effect of counterfeiting

Counterfeiting has grave and far-reaching consequences for all stakeholders.

Firstly, governments lose potential tax income because counterfeiters operate in the informal economy and avoid VAT, customs duties, and corporate taxes.

Secondly, legitimate businesses are undermined, because counterfeit goods divert sales away from them, lowering their profits and forcing cutbacks in employment due to unfair competition. These businesses are also obliged to spend more on brand protection, enforcement, and litigation.

Thirdly, counterfeit goods pose risks to consumer health and safety because they often do not meet safety or quality standards (eg. fake medicines, car parts, electronics), which endangers consumers and erodes trust in the market.

In short, counterfeiting drains government revenue, destroys legitimate jobs, endangers consumers, and funds criminal activity.

How this affects South Africa

For developing countries like South Africa, the impact of counterfeiting is especially damaging because it undermines industrial development and investor confidence. Counterfeit goods negatively impact a number of industries and sectors in South Africa, ranging from fashion to electronics.

Currently, it is estimated by the Consumer Goods Council of South Africa (CGCSA) that the counterfeit market accounts for as much as 10% of the South African economy, and the South African Revenue Service (Sars) estimates that illicit trade costs the economy more than R100bn every year. Where disposable income is under pressure, consumers are easily persuaded by the lower price of counterfeit goods.

Clamping down on the supply of these goods has posed a unique set of challenges. It is impossible for law enforcement to inspect every consignment coming through South Africa’s numerous border posts as this would cause delays and customs inefficiencies.

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Furthermore, fraudulent operations, including fake documentation, further exacerbate the difficulty associated with detecting and preventing the purvey of counterfeit goods. Counterfeiters may even import packaging, machinery and all other product components, separately, and then manufacture the counterfeit items at an assembly plant within the country of distribution.

Nevertheless, efforts are being made through various law enforcement agencies to ‘crack down’ on counterfeit activities. Recently, the National Counterfeit Goods Unit seized counterfeit sanitary pads, deodorants and other consumables worth over R4.8m at a self-storage facility in Mayfair, Johannesburg. On the very same day, counterfeit sanitary pads, hair extensions, toothbrushes and other consumables worth over R9.3m were seized at a small holding in Bredell, Kempton Park, Gauteng.

Additionally, in April 2025, R400m worth of counterfeit goods were discovered at a freight depot in Edwin Swales, south of Durban. This operation stemmed from two suspicious containers that were brought into the country.

What happens to seized counterfeit goods?

With law enforcement adopting an active stance towards the counterfeit goods trade, a key question is what happens to these goods after they’ve been seized?

In terms of the Counterfeit Goods Act 37 of 1997, seized goods that are the subject of criminal and/or civil proceedings must be kept in an authorised depot pending finalisation of the matter.

Once the matter has been finalised, the counterfeit goods are to be destroyed as they cannot be released back into the channels of commerce. This necessitates that the counterfeit goods are reduced to a form that no longer resembles the previous counterfeit item. Previously, some types of counterfeit goods were destroyed using powerful chemicals to dissolve the goods in safe disposal landfill sites.

However, there has been a shift in the way counterfeit goods are destroyed in South Africa. The Companies and Intellectual Property Commission (CIPC) have launched a pilot project aimed at addressing the high costs, environmental damage and unsustainability associated with certain destruction methods.

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Alternatives to destroying counterfeits

There are now initiatives to recycle and upcycle counterfeit goods, by repurposing them into toys for children and pets, and other tools. In other cases, reconstituted items are supplied to local artists in the community as a means of artistic expression. This initiative involves small and medium enterprises to assist with these processes and has been successful in creating job opportunities.

These efforts are being paralleled in several European countries, as a part of React – a non-profit global organisation dealing with marketplace enforcement. React’s growing initiative - “React Sustains” - is premised on reducing the costs of destroying counterfeit goods in a sustainable manner.

It is an initiative that got its start about eight years ago and consists of two main steps: First, the counterfeit goods are reduced to their raw materials, which are subsequently sold. Then, all remaining elements that cannot be sold are recycled. The programme is currently operational in the Netherlands, Turkey, Bulgaria and Belgium but may expand to African countries in future.

An increase in import tariffs almost certainly will have an impact on the market for counterfeit goods by making genuine products more expensive and creating fertile ground for illicit trade. With counterfeit goods already significantly impacting the economy of a country and posing risks to consumer health and safety, the impact is both economic and social.

Encouragingly, South African law enforcement is intensifying crackdowns while innovative initiatives to recycle and repurpose seized goods show a shift towards sustainability and job creation.

Combating counterfeiting requires more than seizures—it demands adaptive, collaborative strategies that protect consumers, support legitimate businesses, and strengthen their competitiveness in the market.