Hillary Clinton provoked an uproar last week when she said that a peaceful resolution to the South China Sea territorial dispute is in America’s “national interest.” China’s foreign ministry denounced those remarks as unwarranted American meddling and an attempt to “internationalize” a strictly regional problem. Notwithstanding Beijing’s protests, Mrs. Clinton’s diplomacy marks another step in a positive evolution of the Obama administration’s approach to Asia.

At issue is Beijing’s claim that the bulk of the South China Sea constitutes its territorial waters. China is acting just as one would expect from a rising great power: As it grows more powerful, it desires to change international rules written when it is was weak.

Yet foreign policy experts have spent much time assuring Asians and Americans that China’s rise would be an exception—less disruptive than, say, the rise of the United States, Germany or Japan. That view animated President Obama’s disastrous “strategic reassurance” policy of his first year, in which Washington reassured Beijing that America would not contest its rise to great-power status. China smelled weakness and upped the ante, declaring the South China Sea a “core interest” and defining it as China’s territorial waters.

Now Mrs. Clinton’s comments—and Defense Secretary Robert Gates’s move to restore military ties with Indonesia during his own Asia trip last week—make clear that the Obama team understands that China’s rise will not be the historical exception. Their new brand of principled realism is characterized by moves to balance China’s growing power and step up engagement with allies and partners—all without abandoning America’s values.

Specifically on the South China Sea, the U.S. wants freedom of navigation, open access to the maritime commons, and respect for international law. Mrs. Clinton proposed last week in Hanoi to resolve territorial disputes through multilateral rather than bilateral means. Meanwhile, as she demonstrated in the Association of Southeast Asian Nations (Asean) meeting, America will embrace partners who share its goal of checking China’s power, but will not shy away from criticizing their human-rights abuses too. For instance, Mrs. Clinton made clear that the U.S. will criticize the Burmese regime’s brutality, despite reservations from the junta’s fellow Asean members.

There are two reasons why a multilateral solution to the South China Sea territorial question offends Beijing. First, its periodic harassment of U.S. naval vessels and expansive claims of maritime sovereignty demonstrate that it does not respect widely accepted standards of maritime conduct. China takes the position that the entire South China Sea is its territorial waters, which is news to the Philippines, Malaysia, Vietnam and Taiwan, who all have territorial claims there. The Chinese are also trying to stop lawful U.S. military operations in the sea.

Second, China has been keen to keep disputes with Southeast Asian nations bilateral. It is much easier to bully and cajole other claimants to the sea’s many atolls, waterways and natural resources individually. By themselves, Vietnam, Malaysia, the Philippines and Taiwan cannot effectively stand up for their interests. Together, with American backing, they can.

That is why Mrs. Clinton’s approach is welcome, and long overdue. It is incumbent upon the U.S. to defend the established rules of conduct by which it expects China to abide. Moreover, Washington is putting an end to China’s divide-and-conquer strategy in Southeast Asia.

Beijing is likely to keep making expansive and unreasonable territorial claims, and it has already started to do so in outer space and in the East China Sea. There is no room for ambiguity when it comes to American interests in free and open access to the commons.

Meanwhile, Mrs. Clinton’s linkage of Southeast Asian security with liberal values was exactly right. Southeast Asian nations want China to abide by the international rules of the road and generally be more transparent in its maritime actions. That will only happen if China becomes a more law-respecting and open society. And America cannot call on China to behave responsibly while allowing Burma’s depravity or Vietnam’s abuses to go unmentioned.

None of this is to say that Mrs. Clinton has settled the issue at one fell swoop. China will put enormous pressure on Asean countries to respect China’s claims. Beijing will argue that while China is resident in Asia, America’s attention is fleeting. This is a compelling argument, but it is one that can be refuted.

The first order of business is to put U.S. military might behind diplomatic efforts. The Pentagon should come up with a plan that adequately balances China’s rising military presence in the region. It is an open secret within defense circles that America’s military posture in the Pacific is eroding. It is time to level with—and earn support from—Congress and the American public regarding the costs and necessity of underwriting Asia’s stability.

Second, the U.S. should approach the region multilaterally by establishing an Asia Regional Partnership embassy in an allied capital—much like we have in Brussels with the European Union. Washington should ask its friends to do the same and populate a new set of diplomatic institutions with cadres of diplomats and military officers who deal with Asia-wide security issues. America need not form a NATO-like formal collective defense alliance, but it is high time to build a tighter network of allied cooperation in Asia.

Mrs. Clinton showed a deft and innovative diplomatic touch during her trip to Vietnam. Washington should continue the momentum by taking steps that demonstrate its abiding commitment to regional security. China’s belligerent response to the policy of “strategic reassurance” should teach the administration that Beijing respects power above all. Rather than reassuring a bellicose China, we should reassure our Asian friends by building the institutions necessary to carry out the secretary’s new policy.

Mr. Blumenthal, who served in the Department of Defense’s Office for International Security Affairs from 2002-2004, is a resident fellow at the American Enterprise Institute in Washington, D.C.