Simple answer to your question - no, having a dead upper trunk won't compromise your tree, in and of itself. The bark will die back to the live vein, and the dead trunk will eventually rot, leave a hollow, and that will eventually get healed over. You can accelerate the process by carving away the dead trunk until you hit live bark, seal the edges of the wound, carve the dead trunk down a little with a concave chisel, and in a few (perhaps ten) years it will be gone.
This is all predicated on the fact that you have a thriving, healthy Chinese elm. If your elm is strong, you can cut away all branches to the trunk... and it will push new buds everywhere. They are extremely forgiving...
Same tree 10 years later. (This is from the back of the tree to show how the scar heals)