The Senate’s passage of China’s most favored nation status gives King Dollar another jewel in its crown.

The China trade deal may support the dollar with favorable trade flows and, in the longer term, cement the dollar’s status as the premier reserve currency.

What the Senate voted on Sept. 19 was a bill to remove restraints on trade with China. As a result, the U.S. will get the benefits of a trade accord that the Clinton administration signed with China last November. In that accord, China agreed to remove tariffs and other barriers to U.S. goods and services. The administration has portrayed that agreement as being essentially unilateral in nature, with China giving concessions on trade and the U.S. reaping the benefits.

So in theory, China will import considerably more American goods, a factor that could make a dent in the huge U.S. trade deficit. China happens to be the largest country component in the U.S. trade gap and the numbers are huge.

The balance of trade with China actually increased to $7.6 billion in July, up from $7.2 billion in June. Any shrinkage in the deficit should be a positive influence on the dollar, just as it would be for any other currency.

There will be some trade flows going the other way in the sense that many U.S. firms now plan to expand their direct investment in Chinese manufacturing facilities. More important than immediate trade flows is that the bi-directional flow of dollars between the U.S. and China will mean China’s banks, and indeed its central bank, will have more reason to hold dollars as assets and reserves.

The greater importance to the trade deal is that it will retard the competitive advance of the European single currency, the euro, and the Japanese yen into the dollar’s reserve currency territory.

The dollar is special among all currencies in that it is the world’s top reserve currency. Central banks would rather hold foreign assets denominated in dollars than any other currency. That is why the dollar can show such amazing strength in the midst of record trade deficits.

The only question is, how solid a deal do we have? While everyone is tossing roses at the U.S. president and the Senate, I have to step back and ask how this can go wrong. The main benefit of the deal is that China is promising to drop remaining trade barriers against U.S. goods. Are they good for it?

Capital goods manufacturers, such as Boeing Co. and Caterpillar Inc., will have an easy time in China. They are ready, willing and able to supply big-ticket items in this case planes and farm machinery that China unquestionably needs. High-technology companies, especially computer and communications-related ones, should also be able to cash in on this bonanza.

The hard cases will be where American goods directly compete with Chinese industries that are hopelessly inefficient. These are the relics of failed industrial planning from a bygone era. Steel is high on that list.

And what if China resists, inch by inch, in opening its markets? China might delay and obfuscate the process by which expanded volumes of certain American goods make it to the market.

A case in point is that the Clinton administration itself has waged a seven-year assault on Japanese trade policy, alleging underhanded tactics to block foreign goods. Japan, the Clintonites have said, has a million tricks up its sleeve to prevent American rice, cell phones, automobiles, and a great many other products from making it to store shelves and showrooms. It is said that Japan can put up invisible barricades to trade. If Japan can, then so can China.

There never will be a perfect trade deal. Still, this is progress. It’s the right thing to do because free trade is the right policy.

David DeRosa is president of DeRosa Research & Trading and manages an investment fund. He is also an adjunct finance professor at Yale School of Management, and a columnist with Bloomberg News.