And why a warning? Why not tell Amazon to remove the items. I feel like most countries have a regulatory authority that has rules banning dangerous product like this.

This is that authority.

The purpose of the warning is for people who have already purchased it. And because the CPSC is likely aware that Amazon Marketplace listings are akin to playing whack-a-mole with overseas drop shippers.

Okay, that makes more sense. Still a little weird that they can request that Amazon remove these items or face fines, regardless of it being a drop shipper.

The CPSC has the authority to prohibit unsafe items from being offered for sale, regardless of who actually puts it in the mail.

Because it was up on Amazon. You can't possibly issue warnings about every potentially dangerous product that may be sold.

You can’t find these in brick and mortar stores for this reason. It is possible to make your own or buy them off Amazon.