If Etsy goes with localized search in Canada, that will not change how Canadians are seen in any other country.
BUT there are already 4 other countries where local items get preference in larger searches, so if they keep adding more countries to the list, yes, that WILL reduce your visibility elsewhere.
A key to avoiding becoming invisible is to make sure you are optimized for lots of niche searches. The localization effect is strongest in larger searches; niche searches will almost always show top items from other countries on the first page, as there won't be enough items in the country to match the query.
It is legitimate for Canadians to worry about this, especially if you don't ship things that fit through the slot of doom. The Bugs thread on this matter was started by a buyer who expressly stated she didn't want to pay the high domestic shipping costs, so she hated this change. She won't be alone. This could drive some Canadians to stop shopping here. I am certainly very unhappy as a buyer