Referring this question to Dr. Main  K. Al-Qudah, a Member of the Assembly of Muslim Jurists in America, he said,

In spit of the high authenticity of this Hadith, but it does not mean the obligation of harming people or showing disrespect to them. The meaning of the Hadith – according to many resources- is that in case of encountering a non-Muslim in a narrow road, the Muslim should not yield to the other person out of appreciation and recognition!
at that time, and according to the Arabian culture, this action was only an indirect way to show a disagreement with other people of faith. On the other hand, it is to be clearly understood that harming people intentionally, Muslims and non Muslims as well, is extremely prohibited according to numerous Ahadith of the Prophet saw, like : “Whosoever harms a Dhimmy (non Muslim resident in the Muslim state) will be my opponent in the day of judgment.” Based on the above explanation, a single Hadith should not be separated from other texts related to the same topic. Rules should not be derived from one resource without considering other resources.