Cloud shell allows Google to see what I type on the shell machine. So if I ssh from there into the target, nothing is gained and it's MITMable by Google. The only difference is that it's less likely to happen.
That's fair. Although there are pretty tight internal controls on what Google can do on your Cloud Shell, you have to put a certain level of trust into Google here. Getting your own GCE VM and using SSH-in-the-browser is arguably more secure. Last I checked an f1-micro VM would suffice and fits under the 'always free' GCE cap.