'We're going to use the full economic powers of our country to protect our workers and protect our jobs, ' the president said, and to 'stop the jobs from leaving our country'.
Rolling back the efficiency standards which Obama signed a short while before stepping down from office will result in major savings for automakers.
But the Republican president will not seek to revoke California's authority to set vehicle efficiency rules even stricter than federal rules as part of this move, a White House official said.
Govs. Jay Inslee of Washington, Kate Brown of OR, protest Trump administration decision to ease fuel efficiency standards for auto manufacturers.
In a move widely seen as a preamble to loosening fuel standards, Mr Trump told an audience of cheering union workers he would "ensure that any regulations we have protect and defend your jobs, your factories", and promised he would encourage growth in the United States auto sector.
The L.A. Times reports that Trump's decision "puts the White House on a path toward a direct and costly confrontation with California".
In 2012, automakers and federal regulators agreed to achieve an average 54.4 mpg across its entire fleet by the year 2025.
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In a separate speech, Trump said his administration would "work on" Obama-era Corporate Average Fuel Economy standards to encourage production of cars in the U.S.
Trump said he's putting that midterm review back on track, so officials can spend another year studying the issue before setting new standards in 2018.
Under Obama, the EPA estimated that the mileage rules would save Americans $1.7 trillion in fuel costs while reducing climate-changing fuel burning by 12 billion barrels of oil by 2025.
"President Trump's action represents a dramatic wrong turn in our nation's efforts to fight air pollution from passenger cars and trucks and protect the health of our children, seniors, and all communities", Eric Schneiderman New York Attorney General said in joining the motion. NY is among more than a dozen, mostly Northeastern states that have adopted California standards. "This is what we're going to do". "This was a constraint deliberately set up by the previous administration to make it hard to utilize coal, oil and natural gas".
The review follows an appeal from the industry, which wants a relaxation of the standards and more flexibility in how to meet them. "And if it takes an extra thimble full of fuel, we don't want that to stop making it", he said.
"There is no more lovely sight than an American-made vehicle", he also said.
Trump, however, will keep a waiver in place that allows California to set tougher standards than are in place nationally, though that could change in 2018. In February, automakers reached out to new EPA Administrator Scott Pruitt and asked him to reconsider.