Kelly decided Tuesday to make the Office of Trade and Manufacturing Policy -- run by National Trade Council Director Peter Navarro -- part of the National Economic Council, leaving Navarro to report to the council's director Gary Cohn, whom Navarro has repeatedly feuded with over trade issues.
The move is likely to further reduce the influence of the President's top White House adviser on trade issues. Navarro has been one of the biggest advocates and implementers of Trump's hardline trade rhetoric, but has seen his access to the President reduced to almost none in the months since Kelly became chief of staff.
Kelly had not targeted Navarro specifically, but has sought to limit access to the President and create a more structured system for gaining entry to the Oval Office.
Kelly's decision sounded alarm bells among some of Trump's allies outside the White House who share his nationalist trade views. They worry that the decision is the latest signal that aggressive trade policies have fallen within the priority list, particularly since the ouster of White House chief strategist Steve Bannon. Bannon's departure has left Cohn, who has pushed back against many of the President's hardline trade proposals, and other foreign policy officials who support free trade, with more influence.
A source close to Bannon said the Breitbart executive viewed the move as the "dumbest decision since backing Luther Strange," referring to the Alabama senator who lost the Republican primary Tuesday night. The move puts Navarro under a "globalist like Cohn," the source added.
A White House spokeswoman did not respond to requests for comment about the decision. Sources close to the White House said they do not expect Navarro will resign.
Politico first reported
on Wednesday that Navarro's office was being folded into the National Economic Council.
Navarro said in a statement that he is a "chain of command guy and will follow Chief Kelly's orders" and said Kelly "assured me I will continue to have the same seat and voice at the President's decision-making table."
Still, an administration official and sources close to the White House said Navarro was unhappy with the decision as it is likely to stifle he nationalist trade views he espouses from turning into action.
Navarro made clear in his statement that the President himself made the trade office he leads a priority in the policymaking process.
"There is also a certain logic to having a Harvard Ph.D. economist join with the National Economic Council and I was promised that, per the Executive Order signed on April 29, the Office of Trade and Manufacturing Policy that I direct would remain an important part of the policy development process," Navarro said in a statement.
Roger Stone, another longtime Trump ally, said he believed the move was "an attempt to induce (Navarro) to quit, to resign." Two sources close to the White House echoed that view.
"Here is a guy who almost perfectly reflects the President's views on trade, views that he ran on," Stone said.
Mike Wessel, a longtime friend of Navarro's and member of the US-China Economic and Security Review Commission, said he worried the move would reduce Navarro's influence and the presentation of nationalist trade views to the President.
Wessel noted that several trade actions the President has promised -- like trade actions resulting from an investigation into foreign steel dumping -- have yet to materialize.
"We haven't seen action. This rearrangement or reorganization sends a troubling message that maybe the hope that we all had (on trade) was for naught," Wessel said.