iCloud music library is on

Have you selected it or used the "Entire library" option? See step 3 in:

Use iTunes to sync your iPhone, iPad, or iPod with your computer - Apple Support

Also, do you have an optional subscription to Apple Music or iTunes Match?

If you want to sync over USB then you need to turn off Use Sync (cloud) Library with your Apple Music subscription - Apple Support. Note this will typically result in less media being available to your phone. If you have an Apple Music subscription then normally you would let everything sync via the cloud so that you always have access to all of your music and playlists, either streaming or via local downloads.

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