By default, USB peripherals that are connected will not be allowed to do anything but charge. You won't be able to choose to transfer files or anything like that.

[...] The default is 'Deny new USB peripherals'.

This isn't correct. The default of that GrapheneOS feature is "Allow new USB peripherals when unlocked". You probably changed this at some point and forgot about it.

I tried formatting the USB drive as FAT32, exfat, and EXT4, but it could only be recognized as FAT32. Formatting the USB drive from the phone formats it as FAT32.

For external storage devices, only FAT32 is supported. exFAT is not supported by the Linux kernel or Android due to software patents. *nix file systems like ext4 aren't viable for external storage due to using *nix file permissions which are not portable between hosts.