Is tracing images in illustrator or photoshop to use on merchandise for sale copyright infringement?

Common sense comes into play here. Let's say it's an outline of a bird, then you're safe. If you put a bluebird on your t-shirt, no one is going to see it as the same bluebird he or she painted or photographed. But if the picture is easily recognized as someones work, then you'd best not do it. Or change it more where its your own art. As long as you are inspired by someones image, and don't blatantly copy it, you're pretty safe. But to be on the up and up, write to the owner of the art and ask their permission to reproduce it.

From what I was taught as long as there is a 30% difference you are fine, and as long as it is not recognizable as that image you are good as well. Just because it is a purple dinosaur doesnt make it barney or a big yellow bird doesnt make it big bird. If it does look like the image you got it from you cannot use it to make money otherwise you can be sued.

If you are copying the outline and simply changing color of the clothes, I would say it is still copyright infringement. Especially if you are using these for commercial gain. Now, if you take a drawing/illustration, and change it in some way (like pixelating it ala Litchenstein or colorizing it similar to Warhol) then it is your own art. Of course, a company logo or famous cartoon character is going to be copyrighted anyways.