My thoughts are if you witnessed this and thought it was wrong you should have acted then. Whether it be informing the tournament director, the childs coach, or approaching the parent personally. Standing by and watching is just as wrong.
Wrestlers have all sorts of emotions that they have to deal with during a match. The younger the child the harder to deal with these emotions. There is no easy answer to what should be done. I personally think the child should be encouraged to finish the match. If they can not be encouraged, then they should forfeit the match. If it continues to be a problem the coach should step in and with the parents decide if the child is too young to be competing.