Claiming responsibility for the murder, an al-Qaeda commander said the organisation had liquidated 'Washington's most precious asset'. That statement has not been authenticated, but even if just an opportunistic boast, it reveals a simple truth about a complex affair: the West has a clear interest in seeing democracy spread; al-Qaeda has a clear interest in seeing it thwarted.

But advancing democracy is a long-term goal for US foreign policy in south Asia. The short-term goal is crushing jihadi terrorism. Sometimes the two collide. Mr Musharraf was until recently seen in Washington as an indispensable ally against terrorists, so his reluctance to surrender authoritarian powers was indulged. But military rule marginalised political moderates and made the state more brittle, more vulnerable to terrorism.

The pattern is the same in Saudi Arabia, Egypt, Algeria, Uzbekistan. In pursuit of the 'war on terror', the US has gambled on regimes that are hostile to the spread of liberal values.

The Bush administration's main motivation in this has been realpolitik. But it is underpinned by an ideological conviction - that the benefits of liberal democracy are self-evident and that no credible alternative exists. This innate optimism led the US to take a dangerously cavalier approach to foreign intervention, assuming its influence is, by definition, benign.

The belief that democracy is the best form of government is unarguably true. But confidence that liberal values are spreading with unstoppable momentum around the world could prove dangerously misplaced, as a number of trends in recent years show. They are set to accelerate in 2008.

1. The rise of authoritarian capitalism. Russia and China have growing leverage over global affairs. They have introduced market forces selectively, generating wealth but keeping the power that flows from it firmly under state control. They are challenging the view that increased wealth leads societies inevitably to demand political pluralism.

Russia's energy resources give it massive economic influence over its former Soviet satellites and, increasingly, over the European Union. China is rivalling the West as a source of foreign capital in Africa, where it attaches no liberalising conditions to its investments. The benefits of Western-style globalisation might have looked lopsided in the developing world, to say the least. But globalisation on Chinese terms is no recipe for political freedom.

2. The rise of illiberal democracy. Mahmoud Ahmadinejad is a demagogue and a despot. He is also the popularly elected President of Iran. Hamas is a terrorist organisation with an electoral mandate in Palestine. Even if Vladimir Putin did not rig elections, his nationalistic authoritarianism would win the backing of a majority of Russians. The West has no strategy for coping with situations where democratic structures favour forces hostile to democracy; when the 'right' system yields the 'wrong' result. That is a big problem as Islamist movements increasingly seek power through the ballot box.

3. The rise of economic nationalism in the US. A recent poll found that only 28 per cent of Americans think globalisation has been good for the US. That is extraordinary given that, around the world, many people think globalisation is a US conspiracy. Candidates from across the political spectrum vying to be the country's next President are pandering to this constituency. Pledges to protect US jobs and to fence the country off from outside influence, whether immigration or foreign competition, will be common currency in next year's election campaign. America is drifting into isolation.

4. The prospect of a serious recession in Britain and America. Some correction after the long post-Cold War boom is inevitable. If the downturn is severe, it will further raise the appeal of protectionism. The idea of free world trade looked much more attractive when the West had no serious competitors. When the US and the UK find themselves reliant on China and India to keep the motor of world growth running, global economic interdependency will start to look less appealing.

5. The emergence of homegrown terrorism. Jihadi rhetoric has appeal beyond slums and refugee camps in the Middle East. It seduces the children of immigrants, native to affluent Western societies. That realisation has led governments, particularly Britain's, to implement draconian security measures. Individual liberties, which used to be absolute, have become relative. Their value is measured against the demands of collective security. The principles that we proselytise abroad are being eroded at home.

British politics more generally is in danger of drifting into narrow parochialism. Tony Blair's final years in office were dominated by international affairs, by the war in Iraq in particular. Mr Brown's instinctive response, sensing public distaste for foreign adventures, is to focus on domestic matters. He, like the US presidential candidates, flirts with the populist language of economic protection. His most memorable slogan in 2007 was a pledge to guarantee 'British jobs for British workers'. He has failed to make a coherent case for adoption of the EU reform treaty, surrendering the initiative on Europe to the rejectionists. He appears to see diplomacy as a distraction from the business of government.

But the dichotomy between national and international affairs is false, as is the idea that British interests can be addressed in isolation. Every political issue now has a global component. Public service reform, crime and education have become entangled in arguments about mass migration and the pressure it puts on state resources or on 'national cohesion'. National security depends on international stability. And, of course, there is the economy, stupid.

Democracy is still the world's favourite political system. In 1900, there was not a single government chosen by universal suffrage. Now the majority are. But the West is slipping into complacency. After the end of the Cold War, the prevailing winds of globalisation filled Western sails. It was assumed that the spread of liberal economics, democracy and wealth worldwide were one and the same thing and that they were irresistible. Now we are faced with recession, insecurity, xenophobic populism, Russia and China resurgent, Islamist militancy adept at subverting democratic processes, fatigue with global intervention - forces that could make 2008 the year when liberal democracy retrenched. That would be a disaster, especially for Britain.

We have one of the most liberal and globally exposed economies in the world. We depend on the international trade and finance system to export services and attract investment to create jobs.

A return to protectionism, US isolation and monopolisation of the world's natural resources by authoritarian states would leave Britain out in the cold.

The challenge for Western leaders in the new year is to salvage the idea of globalisation as a force for good. How easy that is depends, as ever, on events in the US. But Britain cannot afford to wait and see what kind of President emerges to replace George W Bush. Gordon Brown must use his influence abroad and his power at home to make Britain a beacon of liberal democracy.

There is no longer any distinction between foreign and domestic policy, only enlightened globalism and parochial nationalism. Mr Brown must choose his path.