HOW TO ENCOURAGE PLAYERS TO USE THEIR ITEMS

Inventory limits. They are annoying as fuck but when you can't pick up an item because you're at your limit you learn to use them up.

The short answer is you don't, player behavior is super fickle and you're always going to get that one pack rat that will have 99 potions on the final boss and complain if you make them absolutely necessary. If you limit it to 9 or limit it then they'll also complain about not being able to pick up everything that isn't nailed to the floor. There are some things you can do to alleviate it however.

But really if they're not using items, maybe it's because they don't need to. If your game is actually difficult enough to create difficult scenarios, they'll probably be desperate enough to resort to using items after running out of MP. Then the mechanic is actually justifying itself.

I think it's worth taking a step back and thinking about what an item is. Typically they act as restorative magic with a very quantative cost, you know exactly how many times you can use that item, it takes up one turn like any other action, but just about every party member can use it regardless of their role. Vaguely you know you can always buy more or get them from chests later on. If you have a heal caster in yout party they also have restoratives with a relatively same cost that's usually backed up by MP restoratives (or an inn). Offensive items like Fire Bombs are seldom used because damage is just available from eveything, the player has to be cornered to which the fire bomb is the ONLY way out. Psychologically I think people feel like they can always restore MP but using up potions feel like a one and done due to gold/shops being an even vaguer resource pool, but more tertiary than the vague MP one.

Do you ever even feel engaged after you bought your equipment and are deciding what restorative items to get? Like eh maybe 2 revives, 10 potions? Rarely there's an imediate need to go "Oh my god I have to weigh whether or not to stock up on antidotes or awakes" because the player generally doesn't know what they're in for next, or the items just aren't that demanding enough and are merely a just in case. Death Stranding is not an RPG but a lot of it is about preperation, it literally tells you what you're going to encounter with terrain icons on the quests/map (cliffs? snow? bandits? rivers?). I think taking that philosphy and letting the player know what to prepare for can go a long way, it's non existant in RPGs, a genre in which you typically have all the time in the world to think about your actions and yet little to no information to go off of.

Another thing is items should just act differently from one use spells fundamentally. I never tried this out, but an idea I had was that every party member has their own inventory ala Dragon Quest. HOWEVER, every character also has passive skills like "auto potion", traits so common that every party member usually comes with it. So items just get used automatically (on themselves) without taking up a turn when the characters at low health or some gambit-like system to assist it. So items are just resources that generally get drained every battle you go through (depending how much damage you sustain), rather than options that take up turns. They're also limited to mostly self heals unless its a multi-target. The bonus is that the player also now has to decide who's lacking in certain items and maybe the passive traits can steer them a bit (only one character can auto use antidotes but maybe everyone else can eventually). In tough boss battles maybe the items won't quite be enough to get you out of one hit KO range but when assisted by manual healing and balanced correctly I think the player would respond well to it.

Really a lot of classic RPG game loops are just: how far can you go without running out of resources before the next save point/boss. If a game mechanic isn't contributing to that at all, then change or get rid of it.