We analyze trade in both legitimate and counterfeit products. Domestic firms own trademarks and establish reputations for delivering high-quality products. Foreign suppliers export legitimate low-quality merchandise and counterfeits of domestic brand-name goods. Home consumers have rational expectations regarding counterfeiting. We describe the positive and normative effects of counterfeiting, and provide a welfare analysis of border inspection policy and of policy regarding the disposition of counterfeit goods that are confiscated at the border.