"There are several poison pill proposals still on the table that could doom the entire deal," said Thomas Donohue, president of the US Chamber of Commerce, the largest business organization in the United States.
"We've reached a critical moment. And the Chamber has had no choice but ring the alarm bells," he said in a speech in Mexico City, a day before a crucial fourth round of talks on updating the 1994 deal opens in Washington.
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Trump ordered a renegotiation of NAFTA and threatened to pull out of the pact if the United States did not get a better deal in talks between the US, Mexico and Canada that began in August to revamp it.
Trump accuses NAFTA of shipping jobs south of the US border and calls it the worst trade deal ever signed.
Donohue said potentially toxic US proposals include tightening the "rules of origin" to demand certain amounts of American-made content in products, scrapping NAFTA's dispute resolution mechanism and a "sunset clause" requiring the deal to be unanimously renewed every five years.
He blasted Trump for his "undue emphasis" on reducing the United States' $64 billion trade deficit with Mexico.
"The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is the wrong focus, and is impossible to achieve without crippling the economy," he said.
His warnings echoed those of Mexican business leaders.
Mexico's influential Business Coordinating Council has urged the government not to be afraid to walk out on the talks, despite the fact that NAFTA is a cornerstone of the Mexican economy, which sends about 80 percent of its exports to the United States.
"The possibility exists that we could leave the negotiating table because our partners are asking for things that Mexico can't deliver," its president, Juan Pablo Castanon, said earlier this month.
Mexico's cattle industry, which exports nearly $9 billion worth of product a year to the United States, took a similar stand Tuesday.
"We support our government's decision not to back down in the face of irrational demands," said Salvador Alvarez of the National Confederation of Livestock Organizations. (AFP)