Since the Diaoyu or Senkaku Islands dispute between China and Japan reemerged last year, there’s been a tendency to identify the United States as the main beneficiary of it. The thinking is as follows: the dispute strengthens the alliance between Japan and the United States at the expense of the Sino-Japanese bilateral relationship, worsens China’s external security outlook and provides an excuse for the deployment of American armed forces to East Asia which help encircle China. As a result, China’s economic development is hampered and the stability of Communist Party rule may be threatened.

However, if the Sino-American relationship is studied at large, the impact of the islands dispute put in a global perspective and the rise of Japan’s nationalist right taken into account, the odds may not be in the United States’ favor at all.

The United States have so far played something of a doubled faced role in the islands dispute. Secretary of Defense Leon Panetta was dispatched to China last year to declare that the United States would rather the two countries resolve the issue diplomatically. But the United States have also declared that the dispute is covered under their security treaty with the Japanese and expanded their military presence in East Asia to deter possible Chinese aggression. This prompted unexpected countermeasures from China’s side.

The American strategy seems to be one of carrots and sticks. On the one hand, it claims that it will not take sides and urges a peaceful resolution. The intent may be to suppress a Chinese belligerent attitude and give Japan some breathing space. On the other, the United States continue to increase their military deployments in the region and seek to contain China.

When China sends a coast guard ship into waters adjacent to the Diaoyu Islands and Japan is unable to respond, the United States send an aircraft carrier to the area and exercise naval tactics with the neighboring Philippines. The message to China is clear: stop using force to back up your territorial claims. Which only makes China question the United States’ motives more and respond with military actions of its own. It reads American interference as provocation.

China’s perception of American aims in East Asia is not unambiguous. There are those who favor a closer Sino-American relationship on the one extreme with others suspecting a plot to connive China and encircle it on the other. The United States’ two faced strategy in the Diaoyu Islands dispute hasn’t improved the former’s credibility in China. Anti-American sentiments are on the rise.

Even if the present American strategy in the dispute between China and Japan serves its interests in the short term, the mistrust it generates in China negatively affects the prospects for a peaceful and stable Sino-American relationship in the long term.

The United States are tied to their security obligations to Japan and for the sake of its larger Pacific strategy, cannot afford to renegade on those obligations without jeopardizing the trust of other allies in the region. Nor can it tolerate Chinese posturing in maritime disputes if it is to prevent the country from emerging as a regional hegemon in East Asia able to challenge the American position.

The Japanese right is aware of both imperatives and welcomes the increased American engagement. While the return to power of more conservative forces in Japan should help facilitate the American “pivot” to the region, it can backfire when Japanese nationalists, emboldened by America’s treaty support, are willing to risk confrontation and confront China.

The best strategy in the Diaoyu Islands dispute for now is to prevent escalation. The stalemate has already affected the economic relationship between China and Japan, however. As the second- and third largest economies in the world, a deterioration in relations between them could have global repercussions. The yet lackluster American recovery could be impacted. This bilateral rivalry is turning into a three cornered fight. Who will be the ultimate benefactor, if there is one, remains to be seen.

This article was published as the winning entry in an internship competition at Wikistrat, the world’s first massively multiplayer online consultancy.