I think the perfect solution here would be if encounter design is built into difficulty (i.e. difficulty is having more difficult encounters as opposed to just bloating enemy stats).
This way people who want a challenge mode can get an experience where every fight is a tactical puzzle. Unless you're going out of the way to fight harmless citizens, most designed fights should be tough.
Normal difficulty should be driven by a mix of narrative needs and challenge. I.e. challenging enough to make it fun, but the encounters must fit the narrative/world. I.e. if you are beating up minions for whatever story reason, they should be as weak as you'd expect minions to be, etc.
