Terraform is declarative; this is imperative.
Terraform doesn't try to make a common CRUD interface to everything on AWS; that is the sole distinction between this and the pre-existing CLI.
I don't think that replaces other AWS resource schedulers like Terraform and Pulumi, but it could, uh, embrace them into a more CloudFormation-oriented ecosystem, which is clever.
Even going for the provider lowest common denominator implies maintaining different configurations.
Moving to other providers is unfortunately rarely easy except for all but the most basic infrastructure.
I have no interest in using CloudFormation for the AWS parts, and then.. what, Terraform anyway for any other provider?
(Even if CF were on par, which IMO it isn't.)
I'd hazard that the number of engineering orgs using a single Terraform "stack" (repository? domain? whatever) to manage resources across multiple providers is in the single-digit percentages.
The ability to transfer knowledge has non-zero benefit, but the reality is; that knowledge is 10% "Terraform & HCL", 90% "AWS Resource Configuration & Best Practices". 90% of it doesn't transfer, and most of the remaining 10% could be learned quickly enough.
Maybe it enables you to transfer CI/tooling between cloud providers should your org switch. Probably the most reasonable argument.
I think the core of what you're saying is actually right, for the same reasons that the kubernetes statement above is right; AWS is really becoming its own isolated world. Terraform on AWS makes less and less sense, as their in-house options like CF, CDK, SAM, etc evolve maturity beyond what TF is capable of. TF (and Pulumi) (like Kubernetes) is for everything else.
People using this argument has clearly never needed to be multi-cloud. If you can ever, ever, ever, avoid being absolutely forced into this, you should. Being able to move fast on infrastructure has such big implications, and being multi-cloud basically means that you can only rely on an extremely minimal subset of features that completely align across the clouds (hint: the less managed stuff).