I unfortunately haven't been able to expose my 7-month male to many children.
Today we were around a 2 year old toddler, and my puppy was afraid as the parent held the baby. He first started barking as a warning (sounds like a combination of a bark and howl) and then his ears were tucked back. He would bark every 5-10 seconds or so.
After being removed for a few minutes the parent came back and very slowly moved the toddler down to the floor to gauge my puppy's reaction. The puppy backed away and barked again, clearly afraid.
In the moment, I did reprimand him for barking (a few stern "no's") but now I'm afraid I'm teaching him not to sound the alarm when he's scared.
Even after the toddler left he was pretty grumpy and seemed distressed. He's incredibly friendly with adults (too friendly to the point where he pulls on the leash and tries to jump).
Any advice on how to deal with this situation and build towards friendlier interactions?
At first, I wouldn't let your puppy around babies or children. Dodger had the exact same problem. When we had first gotten him it was usually just my husband or myself with him outside and we would introduce him to other dogs and their owners, but that was it. Once kids started coming around him though, he was afraid of kids, purely terrified. Whenever we were outside walking or out at the dog park, some kids were very mean to him or they would crowd around him and it scared him a lot. I started limiting the amount of kids around him around 1-3 kids, nothing more. Even though he showed improvements, I wanted to make sure he would fully be okay around children, so I had a few friends bring their children over (keep in mind this is over a period of a baby over twice every week or so). I had them just sit and converse with me and let Dodger come over and investigate the situation on his own terms. After about 20-30 minutes he would start warming up and showed no signs of being afraid or that he disliked the child. At the time the crying still spooked him and he'd bark a little. We would tell him "quiet" and normally he would just quiet down. Now, crying doesn't really affect him or spook him anymore. He kinda just ignored it and chews on his toys. So you might want to try doing what we did with Dodger and see if that helps in any way.
My thought is very similar to Autumn and Jonathan's: I would be very careful about introducing him to kids and if he doesn't like them, don't force it.
Cassie dotes on small children -- apparently grew up with kids before she was dropped at the dog pound. Normally she wants to love them up. However, when my son's friends' twins were tiny -- just beginning to toddle around -- one of them spotted her beneath a dining table, where she had gone for a moment's refuge during a very busy party. When the little kid pursued her under the table, Cassie started to look very stressed and unhappy. We removed the child forthwith.
She's still fine with kids, but I'm careful not to put her in a position where she could feel cornered.
Little kids wave their hands in the air, which to a dog is a sign of aggression. They also are slightly scared of the dog themselves and, because they're afraid of being bitten, will put out a hand to pet and then jerk it away, which could be taken by the dog as something like an attempt to hit.
If the puppy will take a treat without grabbing (i.e., with no risk of biting the hand that feeds him), you could have a child offer him a treat or two -- and then leave him alone, without pushing it any further. If the pup will chase a ball, you could have the kid toss a ball for him a few times, supervised carefully by an adult. Maybe over time the pup will come to associate treats and play with little kid. But just keep in mind that from a puppy's perspective, a two-year-old is a large, mostly out-of-control creature.
Hm. As I recall, that was the view from a mother's perspective, too... ;-)