"She should negotiate the best way she knows how".
The Cabinet minister said service agreements almost always allow "some mode for movement that goes with that" but that was a "million miles away" from European Union free movement.
The comments from Mr Trump will send shockwaves through Westminster - and emerged as the prime minister hosted him at a lavish banquet at Blenheim Palace, the birthplace of Sir Winston Churchill.
Merkel welcomed the fact that Britain had formulated a position to take into stalled negotiations with the EU. Seeking a free trade area for goods and a common rule book shows the prime minister has put pragmatism before politics and should be applauded.
It comes just days after Mr Trump declined to say whether Mrs May should remain in post, said he had "always liked" Boris Johnson, who quit as foreign secretary over the Chequers agreement, and described the United Kingdom as being in "turmoil".
In between, he will be in Britain, with a black tie dinner hosted by May on Thursday and a working visit with the prime minister on Friday.
Davis was described as being Britain's "Brexit bulldog", charged with leading negotiations with his European Union counterpart over the country's withdrawal from the bloc.
May insisted her plan was exactly what Britons had voted for in a 2016 European Union membership referendum. "That is exactly what we will do".
Then-President Obama in 2016 had also predicted a tough road for a US-UK trade deal.
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"I think it changed the fabric of Europe", Mr. Trump said.
Johnson is scheduled to hold a news conference at the summit later.
Britain is now part of the EU's single market - which allows for the frictionless flow of goods and services among the 28 member states - and its tariff-free customs union for goods. While there would be "no tariffs on any goods", the U.K.'s vast services sector will suffer significant disruption.
The plans laid out Thursday in a 98-page government paper gave Britain's most detailed answer yet to the question of what will replace them. Such a resolution would avoid disruption to automakers and other manufacturers that source parts from multiple countries.
The country is at a standstill with a divided and shambolic government.
It is "aimed at ensuring trade cooperation, with no hard border for Northern Ireland, and global trade deals for the UK", explains the BBC.
Hunt said it was a moment to show that Britain remained a "strong, confident voice in the world".
The Chequers Brexit plan looks like a Cabinet "sellout" and "capitulation" to the European Union, Tory MPs warned the International Trade Secretary.
Crucially, the White Paper emphasises repeatedly that free movement of people will come to an end, but there are concessions.
Abruptly dismissing May's plan could spell the end of her government and make a no-deal Brexit more likely.
Rumours have swirled over possible further cabinet resignations but experts said May appeared to have weathered the crisis for now.