I am completely with you on this–both that Romans makes it very clear that salvation happens at baptism (Romans 6:2-10), and with the fact that the reference to circumcision in Romans 4:11 makes this confusing. In fact, I have thought about this quite a bit. If circumcision corresponds as type/antitype to baptism (it does, at least in part), and if salvation in Christianity occurs at baptism, then why was Abraham considered righteous before he was circumcised? It seems that the parallels are not perfectly aligned in this case.
Here is my response. Circumcision and baptism are type/antitype, but they simply do not correspond exactly. Confusing possibly? Yes, but this is the case biblically. Let me explain. Clearly, faith was not necessary for circumcision, yet faith is required before baptism. That the one to be baptized must have faith is proved from several angles. First of all, Acts 2:36-41 implies that believing the message, being “cut to the heart” and repenting proceed baptism. Clearly, this involves faith. Second, Colossians 2:11-12 proves that our faith must be active in our baptism. To me, the Colossians passage is key here. It does two things. First, it shows that there is at least some sort of type/antitype relationship between baptism and circumcision. Baptism is a “circumcision by Christ.” Yet this passage also establishes absolutely, that our faith must be acting in Christian baptism.
This is my explanation for what does seem to be a confusing fact, or, better, a confusing set of facts. First, there is the fact that Abraham was made righteous by his faith before his circumcision, yet the New Testament makes is abundantly clear that faith must proceed New Testament baptism. The other fact, is that, despite this clear distinction in the chronological order between circumcision/baptism and faith, there is some kind of type/antitype relationship between circumcision and baptism. The reason for the inexact parallel between baptism and circumcision is simply this: circumcision does not require faith, but baptism does.
For your information, it was Ulrich Zwingli who was the first in history to make the false claim that Christian baptism is like Jewish circumcision. He said, essentially what your friend is saying, which is that both baptism and circumcision are merely symbolic of something that has already taken place. He proposed a complete congruence between the two–between baptism and circumcision. For Zwingli, this did two things (both of which are biblically incorrect). It made infant baptism make sense, and it also separated baptism from any connection with faith.
You make a lot of points in your question. It is hard for me to respond to all of them. You also make a parallel between circumcision and the reception of the Holy Spirit. Hmmm… I would be cautious about this. It is true that Paul calls circumcision a “seal” or “sign” of membership in Israel. It is also true that the Holy Spirit we receive when we are baptized is a seal of our salvation (Ephesians 1:13-14). However, the parallel between the “sacrament” of circumcision and our having the Holy Spirit in us is weak at best. Circumcision is a sacrament, but the Holy Spirit is not. I would not advise making a strong connection between Romans 4:11/circumcision and our having the indwelling of the Holy Spirit. This connection does not work logically. The Holy Spirit is a person. He cannot be “a new law.” The Holy Spirit is not an ultimate fulfillment of our faith. He is one of the persons in the godhead. Perhaps you could reword this, but as stated it does not make sense. Perhaps you could say “our reception of the Holy Spirit” is the ultimate fulfillment of our faith in or obedience to God. The phrase “our reception of” is required for this to make sense. I hope this helps.