One industry representative who has seen the new US demands on the auto sector told the Canadian Press the demands are so outlandish automakers may choose to build more cars at Asian facilities and simply pay any tariff to import the vehicles to North America.
The changes would apply to automobiles, trucks and large automobile parts.
One of the sources said the US wants to increase the North American content requirement for trucks, autos and large engines to 85 percent from 62.5 percent.
And for his part, Trudeau says Canada won't walk away from the talks based on proposals, but instead will talk about them.
"The NAFTA's rule of origin for autos is already the highest in any trade agreement in the world but the administration reportedly would like to raise it to 85 percent", U.S. Chamber of Commerce Senior Vice President for International Policy John Murphy said on Friday in a statement.
The Trump administration is seeking to use NAFTA to boost the USA steel and other basic materials industries by proposing stricter automotive content rules that require the use of North American-made steel, aluminum, copper and plastic resins.
The leaders of Canada and Mexico say they're not walking away from NAFTA talks.
A spokeswoman for U.S. Trade Representative Robert Lighthizer didn't immediately respond to a request for comment.
The list is used to verify the regional content level of vehicles and parts so that they can qualify for tariff-free shipment to all three NAFTA countries.
However, two people briefed on the talks said the USA proposal stops short of labor unions' call for "melted and poured" North American steel, which would have precluded the use of raw steel from elsewhere that has been rolled or otherwise processed on the continent.
The U.S.is said to have made the proposal to ensure the pact, which also includes Mexico and Canada, stays up to date.
"That could be the preferred trading route if NAFTA becomes too strict", she added.