I realize no one has directly answered the OP's question yet and while I can't give the exact answer that the OP needs, but for what it's worth:

If my understanding is wrong - can you guys please explain why?
No, you're not wrong, but I don't have the math to help determine the gear you need to simulate the harder gradient. My guess (and emphasis guess) is that it will be proportional to the difference in grade. So an increase from 16% to 25% grade is a +56% increment, so I imagine you might need a 56% increase in gear inches to match the difficulty? Which could mean from 34/28 to something around 34/18, assuming standard 700x25c tires.

However, there are two caveats:

1) The assumption only works in simulation mode (e.g. where the resistance of the trainer simulates the gradient of the terrain) and at 100% emulation; it won't apply in ERG mode (where the resistance of the trainer varies according to your cadence in order to hit a target power).

2) Besides maximum grade emulation, trainers also have some sort of maximum power rating. Which means at some point, when it's at the maximum (e.g. 16%) emulation, and if you're theoretically strong enough to hammer the thing at 50/11 at 90rpm, then at some point the trainer is going to hit a limit and is no longer able to resist the amount of power you're putting out.

On point #2, I think technically this would actually be better represented as a maximum torque rating, but I'm not sure if any trainers actually publish this so we'll just have to live with their standard "max wattage and max grade" ratings.