World Economy

Trump's newest advisor Navarro makes all the tough talk about China look serious

Navarro's China views may soften: Expert

When it comes to the idea of getting tough on China, Donald Trump is looking more and more serious.

On Wednesday, Trump announced the creation of the White House National Trade Council and said it would be headed by Peter Navarro, an outspoken China critic and author of "Death by China."

"I think the big signal is Trump meant what he said when he said he was going to try to reconfigure the trade relationship with China," said Scott Kennedy, a China expert at the Center for Strategic and International Studies. "Navarro is sort of the font of ideas on how to analyze China."

Trump picks Peter Navarro to head White House National Trade Council

Navarro argues that China practices a perverse form of capitalism that undermines the U.S. economy by working hand in hand with U.S. corporations against America's long-term interests. He says China helps individual U.S. companies in the short term by providing them with cheap workers.

Over time, however, China picks off U.S. industry, jobs and know-how and uses them against the United States, says Navarro, who also argues that U.S. corporations pay money to Congress through lobbyists to make sure things stay the way they are. Finally, Navarro rejects the view held by optimists in the United States who believe that China will become more open and less authoritarian over time.

Navarro, a Democrat, is a professor at the University of California-Irvine and has written commentary on China with Trump's pick for commerce secretary, Wilbur Ross. Trump has singled out Navarro's work as influencing his views on trade.

The two look set to play a major role in determining Trump's trade policy, especially since the president-elect hasn't yet named a U.S. trade representative.

Navarro did not respond to CNBC requests for comment.

What other experts say about Navarro

Especially with the rise of a more authoritarian Beijing under the leadership of Xi Jinping, a growing number of trade experts feel that the United States needs a more equitable relationship China — though it's impossible to know if that viewpoint is in the majority.

"I think we're headed into a very transactional period in the relationship [with China], and that's not necessarily a bad thing," said Charles Freeman III, managing director at Bower Group Asia and former assistant U.S. trade representative for China affairs. He said Navarro's "work has become more nuanced over the years, but has continued to maintain a perspective of winning and losing to China."

CNN, citing several sources, reported late Wednesday that the Trump transition team is discussing the possibility of an early executive action imposing tariffs on foreign imports.

There appears to be an ascendant school of thought among economists and political scientists from across the spectrum that a realignment between the United States and China — of some still-undetermined sort — may be desirable.

"This situation is out of balance and needs to be corrected," said Orville Schell, director of the Center on U.S.-China Relations at the Asia Society in New York. "I know [Navarro]. I've gone to events with him. He's not a crazy person. He does believe there's something deeply imbalanced."

On the other hand, some experts point out that recreating the trade relationship with China is much more complicated than the incoming administration may appreciate. And China could "hit back on trade" and has already indicated a willingness to do so, Ian Bremmer, president of consulting and analysis firm Eurasia Group, told CNBC on Thursday.

Potentially adding some nuance to Trump's trade policy is the selection of the governor of Iowa, Terry Branstad, as the U.S. ambassador to China. Branstad has called Xi a "long-time friend." Billionaire Carl Icahn, who has also been named to Trump's administration, is a strong free trade proponent.

Is Wall Street missing something?

So far, Wall Street seems not to believe that there will be any major disruptions to the dynamic between the world's biggest and second-biggest economies. Stock markets have shot higher since the Nov. 8 election, though they've stalled this week.

A Bank of America Merrill Lynch survey of money managers immediately after Trump won the election showed that nearly half of respondents expected tax repatriation and infrastructure spending to be priorities, while only 5 percent said new trade policies would be a likely policy accomplishment in the first 100 days.

"People who predicted Trump's talk was just campaign rhetoric may be incorrect. His appointments, his calls to Taiwan are suggesting he's going to be tough on China in reality," said Anders Corr, principal at consulting firm Corr Analytics. Days after the U.S. election, Trump accepted a congratulatory phone call from Taiwan's president, suggesting a break in Washington's four-decade-old "One China" policy.

Navarro's official title will be assistant to the president and director of trade and industrial policy. The National Trade Council is also slated to work on a variety of projects, including infrastructure and national defense.

"I think the $64,000 question with Peter Navarro's new post in the White House for folks who are free traders is, 'Does his appointment show the White House will really get tough on our trading partners and get aggressive about imposing tariffs on our trading partners, or should businesses breathe a sigh of relief because the authority of this position is unclear?" said David Spooner, partner in the corporate department and co-chair of the international trade practice group at Barnes & Thornburg.

—CNBC's Ted Kemp contributed to this report.