Every dog is different. Your dog might be reading body language of the other dog. Just because the dog seems calm, it may have been giving him the stink eye. It could also be that your pup has been secluded in a kennel situation and is not socialized at all to outside dogs. It sounds like he was ok in the pet store though -- I cannot remember if he met other dogs there.
Permanent scars are something I really don't believe in. I think that when the dog has a bad experience, we also have a bad experience. I think that tomorrow, the dog will remember and associate things about the situation, but they also take vibes from us. I think we have a harder time getting over things than our dogs do sometimes, and, well, we often transmit that to the dog by tensing up, or getting nervous, expecting the pup to act up.
Also, if the other dog or person backs up or goes away, when our dog acts like an idiot, than they have just learned that acting like an idiot makes what they want happen. I think that the best thing to do, is to step out confidently, and if the pup starts to react, say EH! and with a little tug on the collar keep moving forward and away from the item that he reacted to. Next time try to stay a little farther away. Even if the dog is moving in my direction, I would not turn around and walk the other way, or make my dog sit and stay. I would angle myself forward and away from the other dog, but keep going.
When on a bike path -- bikes are something dogs often react to. I listen for the bikes, or skateboards, and before the dog reacts, I steer him off the path and put him in a sit, allowing the dog to see the approach, but he is on task. I have told him to sit and stay, and I have only him there, and if necessary and he breaks his sit-stay, I can help him get into position again, and keep him there.
I don't like the idea that you feel you have no control over a 12 week old puppy. I suggest getting yourself in training classes with the dog post-haste. If you cannot control a baby, a ten or twelve month old adolescent with no manners will be a danger to society.
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