I know why this happens. It is not about system settings. It is that if you tap with a tiny tip of your finger, it doesn't work. You have to first tap touch pad to select a file, then with forefinger so that LARGE part of your finger touches the touch pad do the drag and drop. Don't make the touch pad click, but just touch the touchpad with large part of your finger touching the touchpad. Works every time, after I realised it.
I got intel-based 2020 macbook air. I think it is about a particular type of touchpads that doesn't work like other macbook touchpads.