Element-wise string multiplication
MATL, 12 bytes

c32-p95\32+c


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Explanation

c      % Implicitly input cell array of 2 strings. Convert to 2-row char matrix.
       % This pads the shorter string with spaces
32-    % Subtract 32, element-wise. Each char is interpreted as its ASCII code.
       % Note that padding spaces will give 0.
p      % Product of each column. Since (padding) spaces have been mapped to 0, the
       % product effectively eliminates those colums. So the effect is the same as
       % if string length had been limited by the shorter one
95\    % Modulo 95, element-wise
32+    % Add 32, element-wise
c      % Convert to char. Implicitly display