A terminal is basically a function foo(char_stream) = formatted_char_stream. It has no idea whatsoever what the input means, or what the output is supposed to mean. Your Ctrl-S example is completely in line with this: it's one control code that the Terminal chooses to display/interpet in a certain way (older terminals would just stop, newer terminals display some warning text and wait for user input). Recognizing that the start-red-output control sequence should not be interpreted as a control sequence if it's coming from the output of `ls` is a fundamentally different type of change.

Would it be nice to have a different concept, a CmdDisplayer that takes as input (commands, command text, control text) and outputs formatted text while understanding its input? Maybe. But it wouldn't be a terminal, and it would require a fundamental redesign of every single program that wants to meaningfully interact with it - especially all shells and any TUI program that might make the most use of such a tool.