"It's pretty remarkable how the Chinese have tried to ... game the system," said Bannon, hardline ex-White House chief strategist. "They're used to American leaders buckling under this false concept of engagement."
Trump said Thursday that the U.S. next month would impose a 10% tariff an additional $300 billion of Chinese imports, just days after negotiators from the world's two largest economies met for trade talks.
If the new tariffs were to go into effect on Sept. 1, that move would "cross a psychological barrier" in China, said Bannon, also a Goldman Sachs alum. It would be a "new day" with duties on all Chinese imports coming into the U.S., he added.
In June, Trump met with Chinese President Xi Jinping, who agreed that China would purchase more U.S. agricultural products in return for a hold on any additional levies.
However, the U.S. is accusing China of not following through on that promise, with Trump tweeting Tuesday that the Chinese "just don't come through."
Trump, Bannon added, has "given the Communist Party enough time" to address U.S. concerns about its trade and economic practices.
Washington and Beijing have been engaged in a trade war for more than a year, with each side upping punitive measures on one another.
In May, Trump increased the tariff rate on $200 billion worth of Chinese goods to 25% from 10%. In retaliation, China at the time announced plans to raise tariffs, some to as high as 25%, on $60 billion in U.S. goods.
On Friday, Bannon said on "Squawk Box" that how the U.S. trade war with China gets resolved is "the defining event of our time." He added that none of the 2020 Democratic presidential candidates is tough enough to take on China like Trump.