But then Etsy lose all those sales, which presumably is why they don't do that.

Are they more committed to their morals or their profit?

That would be a very short-term perspective of them to take. If it becomes common knowledge that it's mostly repackaged chinese goods, then the storefront as a whole would collapse. In this case, preserving their morals I believe is very important to their business as a whole.

They probably only need to maintain the perception to keep most of the profits though, so look like your trying but don't do all you can.

They need to maintain their customers' perception, which is not so much about trying as actually having an effect...

Just have a 'reseller' category which users can filter our when searching if they desire, and allow reports like this to force a vendor into this category.