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After decades of alternately living in two unrealistic worlds, the United States may be at least edging toward reality in its diplomatic dealings with China and Taiwan.

President Clinton is considering a new policy that would elevate the status of Taiwan's diplomats and business representatives. The change would make it easier for Taiwan officials to meet their counterparts in U.S. government facilities, for Taiwan officials to visit America and for Americans to make official visits to Taiwan.These modest steps stop far short of changing the "one China" policy that refuses diplomatic recognition of Taiwan in favor of mainland China, but they are certain to cause protests from the communist government in Beijing.

Let Beijing protest. It's time to officially recognize that Taiwan is a growing economic power in Asia and a major trading partner with America, not merely an estranged province of China.

For 30 years, from 1949 to 1979, Washington clung to the fiction that Taiwan was really China, a temporary government-in-exile while the vast mainland was in the hands of the communists. In 1979, Washington flip-flopped and recognized the commu- nist rulers, gave Beijing the U.N. seat and banished Taiwan to diplomatic limbo. Many other nations already had done the same.

Yet neither policy reflects reality. China and Taiwan are independent nations. Taiwan has sought not world recognition of its nationhood but merely acceptance as a separate political entity while China and Taiwan continue to talk about the remote possibility of reunification. That seems reasonable.

The consideration of a new U.S. policy is driven at least in part by an embarrassing incident last May. Taiwan's President Lee Teng-hui was not allowed to leave his airplane or sleep overnight on U.S. soil during a refueling stop in Hawaii on the way to Central America. The resulting outcry in Congress sent a clear message to the White House.

If adopted by Clinton, the new policy would stop far short of granting diplomatic recognition to Taiwan or changing the official view of Taiwan as a province of China. But it would acknowledge that Taiwan is important to the United States. Taiwan imports about $16 billion worth of U.S. goods each year, double the amount sold to China.

Under the circumstances, it makes no sense to treat Taiwan officials as undesirables who can't be received in America as equals.