Thousands of former employees are outraged with military businessman R.J. Hacker (G. D. Spradlin), who had closed down his weapons manufacturing plant, Hacker Dynamics. At a conference held at the former plant, he pins the blame for the shutdown of his business on the current President of the United States (Alan Alda), who has just arrived. The President defends his own belief that the future of the children is more important than war, a belief that has caused major decline in his approval rating. However, after the conference, he expresses to his closest companions, General Dick Panzer (Rip Torn) and National Security Advisor Stuart Smiley (Kevin Pollak), his discontent about not having an enemy to engage in war. An attempted negotiation with Russian President Vladimir Kruschkin (Richard E. Council) to start a new cold war with Russia fails.
However, a local American sheriff named Bud Boomer (John Candy) makes a displeased remark about Canadian beer while watching a hockey game between a Canadian and American team in Niagara Falls, Ontario. The ensuing brawl ends up on the news, and is seen by Stuart. After collecting more information about Canada from a CIA agent named Gus (Brad Sullivan), he suggests Canada as a new enemy to the President. Before long, the television channels are littered with anti-Canada propaganda, which Boomer notices and believes to be true. He prepares for war by distributing guns to his fellow sheriffs, including his girlfriend Honey (Rhea Perlman) and their friends Roy Boy (Kevin J. O'Connor) and Kabral Jabar (Bill Nunn).
After they apprehend a group of Americans dressed as Canadians attempting to destroy a hydroelectric plant, they sneak across the border to litter on Canadian property, which leads to Honey being left behind and subsequently arrested by the Royal Canadian Mounted Police. In a rescue attempt, Boomer, Roy Boy and Kabral sneak into a Canadian power plant and cause a countrywide blackout. When the President learns of this, he orders Boomer's immediate removal from Canada before it's too late.
To make matters worse, Hacker takes revenge on the President for ordering the closure of his business by using a software program called the Hacker Hellstorm to activate missile silos across the country. The President learns that the signal causing the activation of the silos originated from Canada, and summons Hacker. Hacker offers to sell a program to the President that can cancel out the Hellstorm for $1 trillion. With only six minutes left, as Hacker leaves, despite the President telling him not to and trying to figure out what's going on, Stuart realizes that Hacker is the one controlling the silos, and takes, from him, the operating codes required to stop the Hellstorm, killing him in the process after Stuart delivered a punch, unintentionally.
The President orders Stuart's arrest, despite his protests that he is now able to deactivate the missiles. As the launch time approaches for the missiles, which are aimed at Moscow, the President pleads with Canadian Prime Minister Clark MacDonald (Wallace Shawn) over the phone to stop the launch. However, Honey, who was taken to a mental hospital upon her capture and has escaped all the way to the CN Tower, discovers the central computer for the Hellstorm located at the top. She attacks the computer with a machine gun, destroying it and subsequently aborting the launch sequence, much to the relief of the President and his staff. She then reunites with Boomer, who had tracked her to the Tower, and they return to the United States via a speedboat across Lake Ontario.
An ending montage reveals the fate of all of the characters: Boomer realized his dream of appearing on Cops, Honey has been named "Humanitarian of the Year" by the National Rifle Association, Kabral has become a hockey star, and MacDonald is "still ruling Canada with an iron fist."