Do generous welfare states inevitably drift towards isolationism & xenophobia?
Not necessarily. consider the Tahuantinsuyu. It was the best, and perhaps the only good, example of a socialist/imperialist empire. By definition imperialist, due to its extension of cultural power and economic dominion by direct territorial acquisitions. And by definition socialist, since the ownership and control of the means of production and distribution of capital lay with the community as a whole.
Now, it is well-known, and it had been observed by Pizarro and others during the Spanish Conquest, that poverty was nearly eliminated in the Tahuantinsuyu, owing to the system by which the Inca was able to deliver grains and other goods, rapidly and efficiently, from regions of plenty to regions stricken by drought or flood. Common men and women were treated much more equally than in Spain. Education was free and compulsory. Boys at the age of 13 and girls at the age of first menstruation had their intelligence tested by the local Inca officials, and pupils were tracked and educated appropriately. Taxes were high, of course, since the Inca maintained a complex system of roads and communication routes. And penalties for legal infractions were severe--For example, the punishment for adultery was death--but elders and invalids were well cared for by society, and the wealth was distributed to all. Poets and artisans enjoyed presitge, and public works were constantly being constructed. Medicine, in the form of surgery as well as herbal remedies, were generally available to all. Hard work was expected from all and beggars simply did not exist.
There is no evidence of a drift toward isolationism among the Inca. In the ever-expanding Tahuantinsuyu, when new peoples were conquered, such as when the Inca army made its way north into what is now Ecuador, the native populations of the conquered lands were not brutalized. Nor were the conquered peoples treated as inferior. At least we have no evidence of this sort of xenophobia. Rather the opposite: in order to make their new Inca rulers more palatable, the Inca subtly infused the mythological and religious traditions of conquered peoples into the pantheon of Inca tradition. The city god of Quito remained the city god of Quito, even after Quito became part of the Tahuantinsuyu. All subjects of the empire were allowed to worship their ancestral gods as long as they accepted the supremacy of Inti, the sun god.
No isolationism had yet become apparent in the expansion of the Inca. And the only force that really halted their march was the force of guns and horses brought by Spaniards.
There are probably other examples of societies with expansive welfare states which did not drift into isolationism and xenophobia. But I'm more familiar with that of the Quechua-speaking peoples of the Andes, having spent some time in Peru and having read a number of academic treatises by Hiram Bingham and others of their society. Anyway, one counterexample serves to make the point that isolation and xenophobicity does not necessarily follow from wealth redistribution.