The smirking implies that they look down on Buffalo and is very ironic.
I don't think these Canadians actually look down on Buffalo, they simply have pride in their own home, as sad as that may be.
The ironic part is that their own ignorance of how to communicate perpetuates their predicament. The smirking is a sign of disdain whereas puffing out one's chest at the mention of Canada would be a sign of pride. So with this one simple act of smirking they both miscommunicate their intent and confirm the stupidity that is so stereotyped for Canadians.
If they had simply puffed out their chests instead of smirking, the Americans could go back to pitying them instead of being angry. This type of thing is how hard feelings between cultures develop over time. I for one, blame the Americans in this instance. By forgetting how stupid the Canadian is, they make a problem out of something that shouldn't be a problem. The American should simply explain to the Canadian the difference between a smirk and a puff. Granted it may draw an annoying confused look and take a while to explain, but it is still the right thing to do.