I think it’s important to think about whether trade relations will be really much affected by the second Cold War. After all, both blocs still use market economies and would suffer from decreasing trade for political reasons. Trade would probably suffer, but it would be maintained. There’s no reason why two neighbouring countries could not belong to different blocs and still be trade partners to some degree. The second Cold War is not about direct military confrontation, but about ideological and political dominance. Both blocs want to outcompete each other, and prove that their own system is better than the other.
Sure, the USA could try to invade Canada, but what would it gain from that? Such a war would be very expensive for little gain. Also, such direct wars involving industrialized nations are unlikely, because they might actually trigger a nuclear war between new military alliances aligned with both blocs.
I think Canada will join the X bloc, because Canada is really quite forward thinking. They won’t want to be effectively governed by Washington D.C. Instead, they might try a strategy of political appeasement by driving a more moderate X course than Brazil or Iceland.
About Islam and Muslim traditions: I don’t see why their moderate forms would be less compatible with X policies than moderate forms of Christianity, for example. Strict forms of Christianity or Islam wouldn’t be really compatible with democracy or capitalism, I think. But Turkey is secular enough to give progressive policies a chance. Also, Muslim countries generally hate the USA, so they might want to join the X bloc for that reason alone, even if they will adopt X policies in a somewhat careful way.