Counterfeiting was one of the many charges laid by US President Donald Trump at China's door at the beginning of the trade war.

While his protectionist measures may decrease the level of trade between states, they will not automatically prevent the trade of counterfeit goods.

Instead, it may have the inverse effect.

Tariffs will lead to higher costs of imports for both US and foreign companies, leading consumers to seek cheaper alternatives — like counterfeit products.

The trade war between the United States and China continues to spiral, with mutual tariffs now hitting $34 billion worth of goods on either side after Trump began his spate of protectionist measures in March. Many analysts, such as Mark Muro, have argued that the tit-for-tat tariffs will hit certain US industries hard, whereas others have pointed to the huge damage that could be done to the global trading system. But there's another issue so far overlooked: The trade war will be a boon to China's counterfeiters.

Counterfeiting was one of the many charges laid by US President Donald Trump and his trade team at China's door. They're not wrong; the Chinese fake goods industry is enormous. Mainland China is the world's largest producer of counterfeits, accounting for 63.2% of seized goods in 2013, followed by Chinese-ruled Hong Kong at 21.3%. Products from the United States, Italy, France, and Switzerland have been the main targets.

As legitimate Chinese brands have become more famous, the counterfeiting has turned domestic, with fake Huawei phones appearing on the market and many innovative Chinese companies also being targeted. Clothes, phones, and handbags once dominated the counterfeiting market but it's now spread into more specialist industries; lookalike wines imitating famous Australian vineyards have been spotted on Pinduoduo, a large online retailer.

A customs officer arranges counterfeit products displayed at the Customs headquarters in Hong Kong, China, August 6, 2015. Reuters

According to the International Anti-Counterfeiting Coalition, the industry has a global value of more than $1.7 trillion , making it many times more profitable than the global drug trade. Frontier Economics, a consultancy based in Europe, predicted in a report commissioned by the International Trademark Association and the International Chamber of Commerce that the global counterfeit industry will have a value of $2.3 trillion by 2022. The report estimates that another $1.9 trillion be lost on larger social and economic impacts, including displaced economic activity, criminal enforcement, and public fiscal losses.

The growth of e-commerce, which makes it even harder for consumers to distinguish genuine from counterfeit goods, has fueled the industry. Counterfeit goods not only stick the consumer with a lesser product, they cause reputational damage to companies. Due to a lack of resources, small and medium enterprises are less likely to respond to their goods being counterfeited.

Yet China is not the only state where fake goods are rife. In recent years, counterfeiting has grown tremendously in Southeast Asia, as has the scope of the industry. In part, this is spillover from China, with Chinese firms often looking for cheaper labor in neighboring countries. According to the Vietnam Association for Anti-Counterfeiting and Trademark Protection, counterfeit goods are produced in 30 product categories. Free trade zones, which are exponentially more prevalent today than four decades ago, now exist in 130 countries and are often plagued by poor governance, contributing to the expansion of the counterfeit industry, according to a study by the Organisation for Economic Co-operation and Development.

Globalization has created the conditions for the counterfeiting industry to boom, but protectionist measures will cripple attempts to solve the problem.

In recent years, counterfeiting has grown tremendously in Southeast Asia, as has the scope of the industry. Getty Images/Kevork Djansezian

While protectionist measures may decrease the level of trade between states, they will not inherently decrease the trade of counterfeit goods. In fact, the reverse may be possible.

Tariffs will lead to higher costs of imports for both US and foreign companies. The business-to-business counterfeit industry is also large, often involving machines, chemicals, and spare parts. Six US trade associations stated in a joint letter to the chairman and ranking member of the Ways and Means Committee, the chief tax-writing committee of the US House of Representatives, that the increased industry costs will impact on resources used to fight the counterfeit industry.

Further, unless companies decide to pass on the increased costs of imports to the consumer, they will have to absorb the costs or look for cheaper imports. It's not just consumers that fall for fakes; Chinese counterfeit electric parts have been found in US military equipment. The trade war could also prompt Chinese businesses to move some of their production to neighboring countries, making it even more difficult to identify counterfeit goods being exported to the US based on a growing number of source countries.

The growth of e-commerce, which makes it even harder for consumers to distinguish genuine from counterfeit goods, has fueled the industry. UK Home Office/Flickr

Buyers will also be affected by the tariffs. The increased cost of imports are likely to trickle down to consumers, who are increasingly purchasing goods from foreign markets through e-commerce suppliers, directly or indirectly. In their letter, the six US trade associations stated that: “Rather than pay more for legitimate goods, we fear that consumers might seek cheap counterfeits as a replacement, whether knowingly or unknowingly.” Higher costs will push people toward cheaper options. According to University of Arkansas at Little Rock economist Vincent Wenxiong Yao, counterfeiting rises as the price of legitimate goods soars, and counterfeiters can be even more adaptive to the needs of markets than their legitimate counterparts — not least by cutting even more corners.

The counterfeit industry will also be more inclined to take advantage of transshipping, referring to the shipment of goods via an intermediate destination. In April, the European Union and Italy announced an investigation into tax fraud by illegal Chinese companies shipping counterfeit goods into Europe through Greece's largest port, Piraeus. The New York Times has also reported on how tariff evasion is openly advertised by Chinese brokers, who offer to hide the evidence that goods were produced in China by exporting through countries such as Malaysia.