Can you clarify how the child credit reduction (from 4,000) is calculated in TurboTax? It looks to me like it has been based on my total income, instead of my AGI or MAGI

Yes, it's based on AGI (line 11 of form 1040) with add backs for:
• Exclusion of income from Puerto Rico; and
• Amounts from Form 2555, lines 45 and 50,
and Form 4563, line 15.

See the Child Tax Credit and Credit for Other Dependents Worksheet, that TT prepares, for the calculations.