The US President had previously attacked Toyota because it had planned to produce its Corolla model at a new plant in Mexico.
And the two automakers will "share and jointly develop technologies" to build electric vehicles, Lentz said.
Japan's two major car-makers Toyota Motor Corp. and Mazda Motor Corp. said Friday that they have signed an agreement to enter a business and capital alliance to deal with the growing competitions and challenges in the industry. Toyota intends to build the Corolla there, while Mazda will use the new facility to make crossovers.
Toyota said Friday that it would maintain investment and hiring plans at its Mexico plant, but it will locate additional production of the Tacoma mid-size pickup truck at the factory instead of the Corolla, which had been set to move there from an operation in Ontario, Canada.
President Trump has made it a priority to push foreign automobile companies to set-up in the U.S.
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Japan's largest carmaker is mulling taking a roughly 5 percent stake in Mazda, while Mazda may also invest in Toyota, the sources said.
Toyota North America chief Jim Lentz told Reuters in an interview the automaker has not started searching for sites for the plant, expected to employ 4,000 workers, but would locate the factory near Toyota's existing supply chain.
Both parties would also be cooperating on electric vehicles.
It also comes after Toyota and other auto companies vocally opposed Trump's plans to pursue sweeping changes to the North American Free Trade Agreement, which bolstered Mexican manufacturing.
Both Japanese automakers will take small amount of stakes in each other as part of the link up.
The union has struggled to expand beyond its stronghold at Detroit automakers to foreign-owned plants, especially in the southern US.
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In the US market, Toyota has been struggling to sell sedan-type cars as the sales of large vehicles are increasing because of low gasoline prices.
Mazda entered the USA market in as Mazda Motor America in 1970.
Toyota's U.S. Corolla sales are down almost 9 percent this year.
However it's not only electric cars that will benefit from the partnership.
In 2015, Toyota and Mazda agreed to find new areas where they can work together, but they had not announced specifics.
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