Yes. However, applications have to be specifically written to use external storage, which requires popping open the same file picker you use to interact with non-Apple cloud storage. If they store data in their own container, then that can only ever go on the internal storage, iCloud, or device backups. You aren't allowed to rugpull an app and move its storage somewhere else.
I mean, what would happen if you yanked out the drive while an app was running on it?
[1]: https://liliputing.com/you-can-use-a-floppy-disk-drive-with-...