The only way around this that I have found is by downloading Google Chrome on my iPhone and manually moving the entire “On My Phone” folder into the newly created Chrome folder and then accessing them from that folder in the Files tab in Finder with my iPhone connected to my MacBook.
It is absolutely ridiculous that this is seemingly the easiest way to do this.
It is important to note that I wasn’t able to copy files from this folder directly to an external hard drive, I had to first move them to my computer then to the external drive. So, rather than being able to natively access the local files on an iPhone from a Mac and save them to an external hard drive you have to move them to a 3rd party’s folder in files, then copy, not move, them from the 3rd party folder in Finder to a local folder on your Mac. Then finally move them from there to an external hard drive.
Needless to say that this is not a quick process if you have a large folder on your iPhone.
I’m not sure if you are still looking for a workaround like this, but since I came across this while searching for a workaround myself, I wanted to share my experience for anybody who may also be looking for help.
Hopefully Apple realizes how silly it is to not allow people to access these files natively and resolve this in future updates, I would recommend anybody that comes across this issue to leave feedback on Apple’s Support Site