What is the ruling on a child wearing a head covering that resembles what the English wear or Little Red Riding Hood, and has ears like those of a cat? And is selling it considered disbelief?

The blameworthy imitation of non-Muslims is to imitate them in what is peculiar to them, such that anyone who sees the person would think he is one of them. This criterion is not met by the head covering mentioned. As for disbelief by selling this cap, disbelief has no place in such a matter, even assuming it were forbidden to wear or sell it.