Draghi, also the former head of the European Central Bank, delivered the strong message just weeks after warning in a much-anticipated report that Europe faced "existential" challenges.
EU chief Ursula von der Leyen last year asked Draghi to report back on how the 27-country bloc could boost its competitiveness amid increasing global insecurity and economic challenges.
Draghi is now working to ensure his warnings are heeded by EU policy makers.
"The European Union is an open economy, and it's more open than anybody else. Fifty percent of our GDP comes from trade, versus something like 37 percent in China, 27 percent in the United States," Draghi said.
"We are different from the United States. We cannot build a protectionist wall," he told an event hosted by the Bruegel think tank in Brussels.
"We cannot do it and we wouldn't be able to do it even if we wanted to do it because we would harm ourselves."
Draghi said there should be "very cautious, sector by sector" measures that "directly addressed only at making the playing field level" in the face of threats from abroad, notably China and the United States.
Beijing and Washington have ploughed billions into developing clean technologies locally, which Europe fears will leave its industry falling further behind them.
Draghi said competition abroad was being driven by innovation but "also by subsidies, industrial policies, state ownership and other practices".
The EU's priority, he said, should be "to rebuild" respect for the World Trade Organization's rules, but he accepted that the world had changed.
Brussels has already acted more cautiously than the United States against China.
While Washington imposed duties of 100 percent on electric cars made in China, the EU has moved to impose tariffs of up to 36 percent, on top of the current 10 percent.
The EU says the duties -- on which member states are expected to vote this week -- are intended to level the playing field, after a probe concluded that Chinese state subsidies were unfairly undercutting European rivals.
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