China protested Japan's annexation of the Ryūkyūs, but Japan justified its actions by insisting that the Ryūkyūs had been under the control of the Shimazu clan since the early 17th century. In order to prevent this territorial issue from devolving into armed conflict, both governments sought the arbitration of former American president Ulysses S. Grant.

On October 21, 1880, they signed a treaty by which they agreed to divide the Ryūkyū Islands: Japan would take the northern islands, including the main island of Okinawa and the surrounding islands, and the southern part of Miyako and Yaeyama Islands would belong to China. Owing to lobbying against the division of the archipelago by Ryūkyūan activists and some Chinese officials, the Qing government did not reach a consensus about the formal ratification of the treaty. This proposed division of the archipelago was never realized, and the issue of Ryūkyūan sovereignty was set aside until the end of the First Sino-Japanese War in 1895. This indicates that in spite of the abolishment of the Ryūkyū Kingdom and the establishment of Okinawa Prefecture in 1879, the sovereignty of the Ryūkyūs remained uncertain until the end of the Sino-Japanese War.