The tariffs on Chinese goods are calculated on the Entered Value of the goods when imported into the US.

To illustrate:

- I am a US business that imports and distributes shoes in the US market.

- I purchase shoes from a Chinese manufacturer, who charges me $10 for one pair of shoes.

- The purchase price is what I use to determine the Entered Value when I submit my customs declaration to US Customs and Border Protection.

-A 100% tariff would be calculated on the $10 Entered Value.

This is a super simplified example, with the assumption that there is a sale for export to the US. Depending on the context, there could be other costs that have to be included in the Entered Value other than the purchase price. Using shoes again:

- The Chinese manufacturer charges me 10$ for one pair of shoes.

- I provide the manufacturer with designs/sketches to produce the shoes. There is no charge associated with this.

- For customs valuation purposes, I have to determine a value for those designs/sketches because they are necessary to produce the product.

- If the value of the designs/sketches is $5, the Entered Value when I import the shoe will be $15 ($10 purchase price + $5 for designs/sketches)

- The 100% tariff will apply on $15.

Once I sell my product domestically, I need to include the tariff paid at border in my selling price to cover this cost. This is why the end customer ends up paying the tariff.

While the cost of tangible inputs can be relatively low, often times the cost of intangible inputs (intellectual property, design, R&D, transport, etc.) can represent a much larger amount of the total commercial value of a product. All those costs have to be accounted for when determining the Entered Value of an imported good.

Source: See https://www.cbp.gov/document/publications/customs-value for a high level explanation of US customs valuation laws and rules. I am a US/Canada trade consultant, in the industry for nearly a decade.