When Nick asserts, “I see now that this has been a story of the West, after all—Tom and Gatsby, Daisy and Jordan and I, were all Westerners, and perhaps we possessed some deficiency in common which made us subtly unadaptable to Eastern life” (176), what does he mean by this observation?

This is an important quote within the context of the novel. The characters Nick lists—himself, Gatsby, Daisy, Tom and Jordan—are all very different, but Nick imagines them united in a way by their upbringing: they are all "Westerners."
This idea of the East as a contrast to the West runs throughout the novel. The West is a place where people go to make their fortunes. Once the fortunes have been made, many of these people come out to the East to spend and enjoy their money, yet they will never be considered Easterners. They will have grown up in a different environment, with which their "identity" is inextricably connected. Nick identifies "his" middle west as being characterized by real snow and railway lines that carry people away from the claustrophobia of the cities into the open country. The snow can be read as symbolic, suggesting a certain purity in the West, where houses are still identified according to the families who have lived in them for generations and where life moves at a slower pace, even though everybody is still trying to make their fortunes. Those who have grown up in the West have a "deficiency" when it comes to surviving in the East because they are Americans of a different sort, with more depth beneath their superficial corruption. Westerners can be bad people, but they can also always realize the error of their ways and return to the West, as Nick has chosen to do.