This seems like it would be a copyright violation? The result bears substantial similarity to the input, even though it doesn’t have the particular words in common, right?

Like, if you translated the Spanish version to English, you’d have different words than the official English version, but it would still be a copyright violation to sell that, right? Likewise if you first had someone do a translation from English to Spanish before you translated it back to English?

If it is based on an existing copyrighted work, bears substantial similarity to it, and competes with the original in the market, I thought copyright handled that?

The key lies in how easily the process is automated. Once a certain amount of freshly published ebooks are getting rephrased and sold by someone else, authors would be playing whack-a-mole with copyright claims, and they might not even become aware of all the copies of their work out there.