The specified user just doesn't exist on your MySQL (so, MySQL is trying to create it with GRANT as it did before version 8, but fails with the limitations, introduced in this version).
MySQL's pretty dumb at this point, so if you have 'root'@'localhost' and trying to grant privileges to 'root'@'%' it treats them as different users, rather than generalized notion for root user on any host, including localhost.
The error message is also misleading.
So, if you're getting the error message, check your existing users with something like this
SELECT CONCAT("'", user, "'@'", host, "'") FROM mysql.user;
and then create missing user (as Mike advised) or adjust your GRANT command to the actual exisiting user specificaion.