The U.S. Chamber of Commerce has said the U.S. bargaining position encourages other countries to strike trade bargains that bypass the United States and threatens to reduce U.S. access to export crucial markets.
NAFTA ripped down most trade barriers between the U.S., Canada and Mexico.
The three countries, which will meet again on Nov 17, have been unable to reach agreement on a range of issues, including what percentage of a product should be made in the U.S. and whether the trade pact should expire every five years. "We must ensure that the decisions that we make today do not come back to haunt us tomorrow".
"Economists generally argue that it is not feasible to use trade agreement provisions as a tool to decrease the deficit because trade imbalances are determined by underlying macroeconomic fundamentals", says the 37-page report.
On Tuesday, as U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland shared the stage, the two NAFTA reps traded heated criticism while the astonished press corps watched and listened.
The Brookings Institution's Dany Bahar said trade deficits are not the cause of job losses, and called the USA focus misplaced.
"We have seen no indications that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits", he said.
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The extension signals the potential demise of a trade pact that, while critical to North American commerce, has come under withering criticism from the Trump administration as a bad deal for United States workers.
But companies have built complicated supply chains that straddle NAFTA borders, taking advantage of each country's strengths - such as cheap labor in Mexico and skilled workers and proximity to customers in the United States and Canada. She said when goods and services are counted together, the US runs a "slight surplus" of $8 billion.
"New tariffs or trade barriers have the potential of disrupting these supply chains, which could raise costs for USA consumers and possibly make goods and services produced throughout North America less competitive in foreign markets", it points out.
Mexico's Economy Minister Ildefonso Guajardo said it was clear from the beginning that the talks would be tough and "we still have a lot of work to do".
Since 2005, the three countries have also made strides on economic and security co-operation, through the North American Leaders Summit - sometimes called the Three Amigos - which began under former president George W. Bush, the report says.
Lighthizer described being "surprised and disappointed by the resistance to change on the part of our negotiating partners", and urged all sides to consider being more flexible before the talks resume again in Mexico next month.
Negotiators for Mexico and Canada expressed frustration after the talks concluded.
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