I would say both of what you said and what I said are recipes for disaster, but letting another team do things behind your back on things that you're responsible for, is not something you want to have. How would you feel if the cloud provider engineers suddenly downgraded your nodes to different specs, and causing downtime for your users? I think it's a false premise to assume that the application teams cannot observe their usage patterns and optimize themselves.
I think this mostly comes down to whether applications can handle downtime if their workloads are restarted, scale up/down based on demand.
It happens shockingly often that applications only support working with a single replica and even worse when those applications cannot run concurrently with replicas of themselves which prevent smooth rolling updates.
IME if applications are fault tolerant of restarts, or support concurrent replicas then scaling up and down to meet demand is absolutely fine.
The reality for most engineers is that their CTOs stopped caring about tech somewhere between the late 90s and mid 2000s. You'll have to put up with processes designed by some dude who still views platform orgs as a bunch of sysadmins and webmasters.
