It does that.

Every iPhone with USB C has DisplayPort alternate mode, it was not particularly hard to do because all these Apple Axx SoC have a DisplayPort output just in case it lands in an Apple TV later.

Good to know. I tried hooking on an old(er) iPad with USB-C to a docking station. It mirrored the screen to another monitor but did not give me an extended desktop. After researching, I learned this was called Apple Studio Display, a feature that comes in iPads released the following year of the iPad I had.

I hope your assumption is correct and they added this, including the mouse and keyboard capability.

Whether it will extend is unknown. That a phone even drives an external monitor is, alas, a remarkable feature, these days.

Latest news is that it won't do this. The feature is called stage manager.