The Chinese government, in its latest five-year plan, has stated its intentions to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said as part of plans to grow the currency’s international role, which has severe ramifications for the economies of the U.S. and China.

“In essence, it will change the character of China’s economic model – moving from the export- and investment-led structure of the past 30 years toward a pattern of growth that is driven increasingly by Chinese consumers. But there is a catch: in shifting to a more consumption-led dynamic, China will reduce its surplus saving and have less left over to fund the ongoing saving deficits of countries like the U.S.,” Morgan Stanley senior executive and Yale professor Stephen Roach said.

Our trade deficit has exploded in the past few decades, and our trading partners such as China have been using their surpluses to buy U.S. debt and assets, literally buying our country out, but also propping up the value of the dollar. As more and more nations shift away from using the dollar to trade, its value comes into question, which will make goods increase in price for Americans.

“This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. Now that the dollar’s position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital — rather than in unnecessary housing and toxic financial innovation,” economist Nouriel Roubini said in May 2009 to the New York Times.

America’s economic problems, a chief result of disastrous “free” trade agreements such as NAFTA, the WTO and the proposed KORUS treaty, have made it impossible for manufacturing to survive in this nation and have cost us millions of jobs.

The only way to end this nightmare is to embrace protectionist principles that made this nation great. We cannot continue to parade as a superpower while racking up larger and larger deficits while going deeper and deeper into debt. Sensible fair trade policy will be required to keep our economic ship from going to the bottom.

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