Dr Navarro will head the effort to "advise the president on innovative strategies in trade negotiations, coordinate with other agencies to assess US manufacturing capabilities to match unemployed workers with opportunities in the manufacturing sector".
Harvard graduate Dr Navarro was one of the leading economists on the Trump campaign, co-authoring a report on growth plans in September with Trump's pick for Commerce Department chief, Wilbur Ross.
Said Beijing's Centre for China and Globalisation deputy chief He Weiwen: "This is a negative message and we should be concerned" as the appointment will disturb China-US trade relations. "If there's a trade war, the US side would lose more."
Said Chinese Ministry of Foreign Affairs spokeswoman Hua Chunying: "China and the US are two big countries and have a lot of common interests. Cooperation is the only correct choice for both."
For more than 15 years, Mr Navarro has written books and directed a documentary on the US-China trade relationship that helped form the Trump campaign's anti-globalisation issue.
Said Mr Trump: "I read one of Peter's books on America's trade problems years ago and was impressed by the clarity of his arguments and thoroughness of his research. He has documented the harms inflicted by globalism on American workers, and laid out a path forward."
Mr Navarro has blamed Nafta and China's 2001 entry into the World Trade Organisation for much, if not all, of a 15-year economic slowdown in the US. The world's largest economy grew an average 1.8 per cent during that span, down from 3.4 per cent growth from 1986 through 2000.