On the evening of June 15, 2012, the Philippines conceded a dramatic ten-week standoff to China by withdrawing its maritime vessels from the waters surrounding Scarborough Reef, a group of tiny outcrops 120 miles west of Subic Bay. Like many islands and rocks in the South China Sea, the sovereignty of Scarborough Reef is contested by multiple claimants, in this case China, the Philippines and Taiwan. And although Asian leaders are quick to eschew notions of zero-sum competition, there was no question that Beijing had scored a tactical victory at Manila’s expense by successfully seizing and occupying the disputed area.

The crisis could have led to regional war. Dozens of government vessels and fishing boats were floating in dangerously close proximity to the reef in the context of contested territory and restive publics. But more profoundly, the standoff at Scarborough Reef demonstrated that U.S. efforts to deter Chinese assertiveness were not working. Soon after the Philippines departed the reef, Chinese officials and pundits began speaking of a “Scarborough Model” for exerting regional influence and annexing disputed territories. Inspired by events, leading Chinese scholars are now exploring strategies of “extended coercion” (a play on extended deterrence) through which China could pressure U.S. allies while keeping Washington at bay.

More Chinese coercion in the South China Sea would run counter to U.S. interests. In addition to threatening regional peace and prosperity, it would raise further questions about America’s staying power in Asia and sow serious doubts about the value of partnering with the United States.

As China draws lessons from its standoff with the Philippines and looks to employ similar methods elsewhere, so too must the United States learn to check this behavior by understanding exactly what happened at Scarborough Reef, why Chinese coercion was so effective, and what can be done differently in the future.

THE crisis was born when a Philippine Navy surveillance plane detected eight Chinese fishing vessels near Scarborough Reef on April 8, 2012. As suspected, they were found with illegal and endangered giant clams, corals and live sharks, in violation of Philippine law. The Philippines then deployed the BRP Gregorio del Pilar, a decommissioned U.S. Coast Guard cutter, to arrest the fishermen. What the Philippines reconnaissance plane had failed to see, however, was that Chinese maritime-surveillance vessels were also in the area. Despite the fact that the Philippines regularly uses naval vessels for interdiction operations (necessary because of its limited number of combined navy and coast guard ships), the Chinese acted incensed that the Philippines had employed a military vessel for law-enforcement activities.

Accusing Manila of militarizing the dispute, Beijing engaged in what scholar Stephanie Kleine-Ahlbrandt has aptly termed “reactive assertiveness,” quickly dispatching maritime vessels to prevent the Philippines from detaining the fishermen. With government ships squaring off at the shoal, the countries became locked in a face-to-face test of sovereignty.

Demanding that the Philippines immediately withdraw, China rapidly escalated the dispute by matching and then greatly outnumbering the few Philippine vessels that had arrived to relieve its frigate. Chinese maritime vessels, reportedly working in concert with private fishermen, then took the extraordinary step of erecting a rope barrier across the mouth of the C-shaped lagoon, which first trapped Filipino fishermen inside the reef and then blocked their re-entry once they were permitted to exit. All the while, People’s Liberation Army Navy (PLAN) vessels were floating over the horizon, sending Manila an ominous message not to make trouble.

Beijing took to economic coercion as well, announcing unprecedented inspections of Philippine bananas that were left to rot on Chinese ports. A widespread travel ban drastically cut the number of Chinese tourists visiting the Philippines.

As the standoff grew tenser, traditional diplomatic channels yielded few results. That communications were poor between Beijing and Manila was partially due to circumstances that had nothing to do with the crisis. The Philippines had yet to fill its vacant ambassadorship to China and the Chinese ambassador to the Philippines was considered ineffective and out

of sync with Beijing.

Further complicating matters, the lead Chinese diplomat in Beijing, Vice Foreign Minister for Asia Fu Ying, happened to have been China’s ambassador to the Philippines in 1999 when China had provocatively advanced its claims in the South China Sea by building a military installation on the disputed Mischief Reef (which it had seized in 1995). As one Philippine official observed: “If there’s anyone who knows how to steal islands, it’s she.” Attempts to develop credible back channels between Manila and Beijing failed to gain traction.

The two governments’ inability to talk to each other implicated the United States as the default interlocutor and referee. Both began their own private negotiations with U.S. officials, who then had to relay messages back and forth between the sides.

Although China was loathe to call the United States a mediator, Beijing was imploring Washington to pressure the Philippines to back down, describing the leadership in Manila as emotional, unpredictable and emboldened to reckless adventurism by announcements from President Obama and his cabinet that the United States was rebalancing attention and resources to Asia.

Meanwhile, diplomacy between the United States and the Philippines reflected a shared recognition of the importance of continued caution and restraint. Manila was at once hoping for a return to the status quo ante while seeking clarity on the conditions under which the alliance’s Mutual Defense Treaty would trigger U.S. military intervention. A ministerial-level meeting between Secretaries Clinton and Panetta with their Philippine counterparts in April 2012 and a visit by President Aquino to Washington in June sought to send a signal of alliance unity, although in public the United States studiously preserved its “strategic ambiguity” regarding the treaty implications of an outbreak of hostilities in the South China Sea.

After weeks of discussions, demarches and negotiations, U.S. officials in mid-June brokered what they thought was a deal for a mutual withdrawal. Exhausted, outnumbered and lacking viable alternatives, Manila withdrew its remaining ships under the facing-saving auspices of an oncoming typhoon. China, on the other hand, failed to comply with the agreed-upon deadline and retained its maritime vessels at the shoal, where they remain today on near-constant patrol.

ALTHOUGH the U.S. military maintains the ability to deter major power war in Asia, the threat of large-scale conflict is remote. Instead, regional instability is more likely to derive from disputes and contestation occurring in a gray zone between war and peace.

China harbors a number of strategic advantages in this environment, a fact not lost on Beijing. It was no accident that non-military maritime vessels served as the leading edge of Chinese coercion at Scarborough Reef. This helped to ensure that the dispute would be settled as a lopsided arm wrestle between China’s large and highly capable coast guard and the Philippines’ near non-existent counterpart. Beijing pressed this advantage right up to—but still below—the line of militarization, which would have increased the likelihood of response by the U.S. Navy.

In addition to the yawning gap in Chinese and Philippine maritime capabilities, Beijing also exploited its asymmetry of stakes with the United States. Foreign-ministry officials were quick to cite nationalist voices both in the PLA and the Chinese public calling upon the government to use force against the Philippines. Senior-level policymakers in Beijing indirectly referred to China’s claims in the South China Sea as a “core interest,” which is shorthand for issues like Taiwan and Tibet over which China is willing to go to war to prevent opposition forces or adversaries from achieving their aims.

In response, U.S. officials were cautious, not wanting to provoke China into conflict. The dilemma for the United States was further sharpened by Beijing’s unwillingness to open credible channels with Manila. Responsibility for negotiating a resolution to the crisis therefore fell squarely on the United States. The ancillary effect was that the dispute became principally a U.S.-China issue, invoking all the complexity that comes with maintaining stable Sino-U.S. relations. Beijing reinforced this dynamic by publicly and privately blaming the United States for the Philippines’ actions.

To prevent the region from coalescing behind Manila, China moved to isolate the Philippines and drive a wedge in the Association of Southeast Asian Nations (ASEAN). This was relatively easy at the outset, given that a number of regional countries shared China’s public position that the Philippines was to blame for instigating the crisis by employing a naval vessel for law enforcement activities. The standoff also erupted at a time when the Philippines was seen as an outlier in ASEAN’s internal efforts to reach a consensus on a regional Code of Conduct (COC) for the South China Sea.

But as time wore on, and particularly after China erected a physical barrier at the reef, there was a growing consensus in the region that Beijing had overplayed its hand. The time for public scrutiny would come at the upcoming ASEAN Regional Forum (ARF) in July and then the East Asia Summit leaders’ meeting later that fall.

Anticipating this, Beijing responded with a diplomatic two-step. First, after months of obstinacy, China announced its willingness only days prior to the 2012 ARF to enter talks on the Code of Conduct later that year. However hollow, this effectively muted what otherwise would have been a leading point of criticism from regional capitals.