The American president said it would be a “tremendous order for our companies” and that the US risked losing business to Russia if it stopped selling the kingdom weapons.
The comments come following the disappearance of the Saudi journalist and as concern mounts over civilian deaths caused by a Saudi-led military coalition in Yemen’s civil war.
Speaking to reporters at the White House on Saturday, he added: “There are other things we can do that are very, very powerful, very strong and we’ll do them.”
The billionaire tycoon said his administration secured a $110bn (£83.6bn) military order from Saudi Arabia and that the deal included Saudi commitments to invest heavily in the US. He said the deal was worth hundreds of thousands of US jobs.
“If they don’t buy it from us, they’re going to buy it from Russia or they’re going to buy it from China,” said Mr Trump.
“Think of that, $110bn. All they’re going to do is give it to other countries, and I think that would be very foolish.”
Mr Trump’s comments follow reports claiming Mr Khashoggi – a critic of the kingdom’s Crown Prince Mohammed bin Salman – recorded audio on his Apple watch of the moments he was allegedly interrogated, tortured and then killed.
He has not been seen since he entered the Saudi consulate in Istanbul over a week ago after apparently giving his fiancee his iPhone, which the watch was synced with.
Turkish officials have said they believe a 15-member Saudi “assassination squad” killed Mr Khashoggi there.
President Trump warned the US would inflict “severe punishment” if Saudi Arabia was behind his disappearance.
On Saturday, the president said he would meet with Mr Khashoggi’s family but said he has not yet discussed the journalist’s disappearance with Saudi Arabia’s King Salman as he said he would on Friday.
However, he told CBS: “We’re going to get to the bottom of it.”
Mr Khashoggi is believed to have turned on the recording feature before he went inside the building on 2 October to get documents for his forthcoming marriage.
The new revelations by a Turkish newspaper, which have not yet been verified, put more pressure on Saudi Arabia to explain what happened to Mr Khashoggi.
The pro-government Sabah paper, which claims Turkish officials now have the audio, reported that Saudi intelligence agents realised after he died that the phone was recording.
They apparently then tried to delete the recording, first by incorrectly guessing Mr Khashoggi’s pin number on the watch, then later using the journalist’s finger.
However unlike iPhones, Apple watches do not have a fingerprint ID unlock function.
Authorities recovered the audio from Mr Khashoggi’s iPhone and his iCloud account, the newspaper said.
“The moments when Khashoggi was interrogated, tortured and murdered were recorded in the Apple watch’s memory,” it added.
Turkey’s government believes he was deliberately killed inside the building and his body removed.
A delegation from Saudi Arabia has arrived in Turkey as part of a joint investigation.
The kingdom has said it had nothing to do with Mr Khashoggi’s disappearance.