My mother lost her shop because she was selling charms (on bracelets she made) that had copyrighted/trademarked designs that she bought from China. She didn’t produce the actual infringing part, just partnered it with her own stuff. She still lost her shop after a few strikes.

I assure you that Etsy is serious about that, but it takes a few reports to actually shut the shop down. If nobody else is reporting them, it could take forever.

Go ahead and report them. If they’re really bad about this, they’ll lose their shop immediately. Otherwise, it’s a very strong warning.