The loss occurs whenever you re-rip a track. You are taking something that is already compressed and compressing it again. Take these numbers, they aren't set in concrete or anything but they can give you a good idea of what is going on. A 320kbps mp3/AAC file contains about 70% of the audible information if the file is ripped directly off of the lossless CD while a 160kbps mp3/AAC file contains 50% of the information when ripped from the lossless CD. Now, you take that 320kbps mp3/AAC and convert it directly to 160kbps mp3/AAC, you will then end up with 50% of 70% which means that you will end up with a file that contains about 35% of the original information, the same sound quality as a 64-96kbps mp3/AAC. Again, these numbers aren't 100% accurate but they give you an idea of what is going on.
It doesn't matter if you go straight from 320kbps mp3/AAC to 160kbps mp3/AAC or if you burn that 320kbps mp3/AAC file to a audio CD then rip that audio CD to 160kbps mp3/AAC, the same quality loss will be present. There is absolutely no way around the quality loss.
64GB iPhone 5 | 64GB iPad mini | AppleTV 2 (2012) | AppleTV 2 (2010) | 2012 15" MacBook Pro, 1TB SSHD, 16GB DDR3 1600 MHz, OS X 10.8.3 Mountain Lion | Apple Lossless | iTunes AAC 192kbps VBR | iTunes 11.0.2| Library size = 1.04TB | Legacy iPods: 3G 40GB, 4G 40GB, 5G 60GB, 160GB iPod classic (2009)